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WEEKLY
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| SECP approves new financing product for stock market |
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Saturday, November 07, 2009
By Salman Siddiqui
KARACHI: The Securities & Exchange Commission of Pakistan (SECP) has approved a new financing product for stocks market called Margin Financing System, while the date for its implementation would be announced later.
The National Clearing Company of Pakistan Limited (NCCPL) announced this on Friday through a handout.
Unlike the earlier dismantled financing product i.e. Continuous Funding System Mark-II (CFS MK-II), which had a capping on mark-up rate, this new product of Margin Financing shall be caped on KIBOR+8 per cent, the concept paper of the product said.
The concept paper, which is available for review and basic understanding, proposed two ways of financing in the market. One is indirect (through brokers) and the other is direct (through banks).
Details regarding indirect mode of financing (through brokers) in the paper explained that brokers may themselves provide financing to their clients, but the settlement will be made through NCCPL.
“A member of one stock exchange can provide to member of another stock exchanges as its client. Further, the brokerage house will not be allowed to use the funds of its clients for providing MF and can only provide MF out of its own resources,” concept paper explained.
The financer will recover the mark-up directly from brokerage house. In case if the reversal is not linked to the ready market sales transaction the only effect upon affirmation by the financier will be the unblocking of securities in the financier account.
This indirect system applies free float based position limits on financees. Accordingly, only 40 per cent of the total free-float will be available in market for financing. Brokers cannot exceed their limits beyond one per cent of that available market float in each scrips. While this limit for the client is caped at 0.5pc of free float available with brokers, according to concept paper.
Exposure to MF shall not exceed 10 times of the broker. Exposure to a single client shall not exceed five per cent of the total permissible exposure. Exposure in single scrip shall not exceed 20pc of the total permissible exposure, paper said.
The paper carries only a paragraph details on direct mode of financing (through banks), which reads, “This product will facilitate banks to provide direct credit facilities to clients for obtaining financing against securities. The client will directly approach the bank for credit line to obtain finance against securities.”
The financing product, which was proposed by SECP constituted Consultative Group on Capital market to the Commission, will be operated through the portal of NCCPL. The Company has initiated necessary system development and regulatory amendments in its regulations, NCCPL notification added.
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ISSN 1563-9479 
