The Securities and Exchange Commission of Pakistan (SECP) has made amendments to National Clearing Company Pakistan Ltd Regulations 2015 to improve margin financing (MF) products.
The SECP claims that MF reforms will allow the securities brokers to provide financing to their customers in a more regulated manner and will facilitate investors who wish to undertake leveraged trading and need finance for purchasing shares. As a result, position limits and exposure limits have been liberalised to allow more liquidity.
However, the reforms have failed to impress some stakeholders who think the situation will remain the same.
Now the MF facility will also be available to investors against their net purchases at expiry of Deliverable Futures Contracts allowing them to honour their settlement obligations in futures segment, thereby further reducing settlement risk.
For meeting the funding needs of investors, the MF facility will now be available on T+1 against their net purchases in ready market segment.
Moreover, MF financiers can now collect market-to-market (MTM) losses in any manner mutually agreed under the financing agreement signed with the borrower instead of the earlier stipulated mandatory collection of MTM losses in cash only in case of 5 per cent decline in MF financed security value.
Further, the brokers that meeting specified eligibility requirements shall be allowed to pledge 75pc MF financed securities in favour of National Clearing Company Pakistan Ltd (NCCPL) to fulfill margin requirements against exposure in the ready market.
The SECP has said that the MF financiers will be allowed to release an MF transaction and rollover with revised MF transaction value after adjusting MTM losses and any payment received from their investors.
The reforms have been approved after due consideration to any incremental risks and implementation of appropriate risk mitigating features, and were finalised as a result of comprehensive stakeholder consultation.
Whereas, the stockbrokers claim that the amendments made by the SECP is less likely to yield any result.
“The core issue is that the NCCPL was not allowing direct financing by the banking sector, whereas the fact is that the bulk of funds are available with the banks only,” said Munir Khanani, senior member Pakistan Stockbrokers Association, “What we see is that the NPCCL wants to introduce its terms for the banks whereas the banking sector has its own regulator – the State Bank of Pakistan and they have their own system of financial risk mitigation.”
Mr Khanani said that it was imperative that all the relevant regulators including the SBP, SECP, NCCPL are needed to sit together with the stakeholders to find a solution to MF issues.