SECP mulls regulatory changes for derivative products

KARACHI: Securities and Exchange Commission of Pakistan (SECP) is likely to relax certain regulations on stock futures in an attempt to enable the Pakistan Stock Exchange (PSX) to roll out new derivative products, a statement said on Saturday.

The SECP constituted a seven-member committee to review the product structure, operational aspects of regulatory regime of cash-settled derivatives and circuit breaker regime.

“Furthermore, just last week a SECP-formed committee on derivatives trading has submitted its report to the commission with specific recommendations on launching derivative products and their risk management regime,” said the statement, issued by the PSX.

“It is hoped that this will enable SECP to make appropriate regulatory changes in order for PSX to launch derivatives trading in Pakistan capital market.” 

Analyst Adnan Sheikh at Topline Securities said currently, there are basic forms of derivatives available in the market. “New products will boost traded value and scale up number of investment avenues,” Sheikh said. “This will also open market access to hedge funds trading.”

In January, a Chinese investors-led consortium bought 40 percent stake in the PSX. The consortium comprised of China Financial Futures Exchanges, Shenzen Stock Exchange and Shanghai Stock Exchange, and two local companies Pakistan China Investment Company Limited and Habib Bank Limited.  The acquisition followed a landmark inclusion of PSX into the Morgan Stanley Capital International Emerging Markets Index. 

In the half year ended December 2016, the average daily value traded in the PSX rose to Rs15 billion from Rs10 billion a year ago, showing a 50 percent growth. In January 2017, the average daily value traded further improved to Rs18 billion. In 2016, the KSE 100-share Index increased 40 percent, making Pakistan the best performing stock market in Asia. 

Besides, earnings growth of KSE-100 companies is amongst the top in Asia and the return on equity of these companies is one of the best in Asia. 

“These factors and continued improvements in functioning of the capital market led to Pakistan market being upgraded to be included in the MSCI-Emerging Markets Index from its previous position of being in the MSCI-Frontier Markets Index,” said the statement.

The introduction of derivative products “will further improve liquidity and provide investors with greater choices in managing their investment portfolios.”