Modified margin financing to come online by month-end

KARACHI: Investors at the Pakistan Stock Exchange (PSX) would have to wait a little longer, as the modified version of margin financing system would be launched by the end of May.

“(The) Securities and Exchange Commission of Pakistan (SECP) had already framed the regulations; (and) now the market’s IT system is being modified accordingly and the new leverage product would definitely come online by (the) end of May,” a senior PSX official said. The new leverage product is a modified form of the existing margin financing system and would enable brokers to acquire bank financing against shares pledged with them by the investors. “The new leverage product is not an alternate of in-house badla financing and would not expose financiers or the financees to unnecessary risks,” the official added.

Under the existing margin financing system, the pledged shares are kept in a blocked account and these cannot be used by the brokers for further financing from banks. The modified product would enable brokers to acquire bank financing against shares pledged with them by the investors and the shares would be moved from the blocked account to the banks. Analysts believe the product will address liquidity issues in the market and would revive trade activities. Under the new rules, brokers would submit a significant part of margins to cover expected losses with the banks instead of investors. Margin calls, in case of increase in losses, would be dealt with as a separate matter with investors on a day-to-day basis, the official said. Some brokers are of the view the new product will not allow the leverage product to deliver the desire results. Brokers believe no financing product has ever worked in the market except for badla [in-house] financing and Continuous Funding System, [which was also a form of badla financing].