SBP allows non-resident investors to conduct margin trading

KARACHI: The State Bank of Pakistan (SBP) on Friday allowed non-resident investors to conduct shares margin trading in order to increase trading volumes and inflows in the equity market. 

“It has been decided to allow movement of funds from SCRA (special convertible rupee account) towards margin requirement for ready/cash market transactions in the Pakistan Stock Exchange,” the SBP said in a notification. 

Analysts said the decision followed permission to non-resident investors to conduct margin-based trading.

Earlier, fund transfer from SCRA to meet margin requirement for ready/cash market transaction was not permitted.

Analyst Ahsan Mehanti at Arif Habib Limited said the fresh measure is positive to increase market depth as well as trading volumes at the bourse.

“Earlier, non-resident investors had to pay 100 percent value of the shares they bought,” Mehanti said. “Now they can conduct margin based trading, which would enhance their investment scope.”

Non-residents are allowed to trade in the shares quoted on the local bourse through SCRA opened in local banks. Such accounts are fed by remittances from abroad or transfer from a foreign currency account maintained by the non-resident investor in Pakistan.

The SBP also allowed pledging of securities held in the Central Depository Company’s (CDC) account of non-residents as an alternative to cash to meet margin requirements. 

“The securities available in account/sub-account may be pledged in favour of the National Clearing Company of Pakistan Ltd in case of non-availability of funds in SCRA to meet margin requirements against purchase and sale transactions of non-resident investors in ready/cash market till settlement of respective transaction,” said the SBP’s notification.

Separate account or sub-account is to be opened and maintained at CDC for each nonresident investor, eligible for investment in securities quoted on a local bourse.

Chief commercial officer Khurram Schehzad at JS Global Capital said this would encourage foreign investment in the capital market.

“These facilitation measures would provide non-resident investors with more options and encourage inflows,” Schehzad said.

The outstanding amount of margin financing stood at Rs14 billion as on December 2016. Foreign investors, both individual and institutions, hold more than 30 percent of free-float, which is around 24 percent of market capitalisation of $90 billion.    

Pakistan Stock Exchange emerged as the best performing stock market in Asia and 5th best in the world in 2016 with the benchmark KSE 100-share Index gaining 43.05 percent.

Analysts said the country’s capital market is expected to continue its upward trend and deliver a healthy double-digit return in 2017. 

The view is premised on robust double digit corporate earnings growth, expected foreign inflows as a result of the bourse’s up-gradation to Morgan Stanley Capital International Emerging Market Index, proceeds from PSX divestment, a likely introduction of new margin financing product and attractive valuations, they added.