PSX’s new future derivatives to improve market depth

KARACHI: New futures eligibility criteria and the 90-day maturity deliverable futures contracts are expected to increase volumes and liquidity in the Pakistan Stock Exchange (PSX), its managing director said.

“Launch of the international standard 90-day DFC [deliverable futures contracts] is a positive development for the stock exchange and for all stakeholders of the capital market,” Farrukh Khan, managing director of PSX said in a statement.

“90-day DFC shall open each month such that the market shall have three different maturities (current month expiry, next month expiry and last month expiry) at the start of each contract month. In addition to this, it will also eliminate the need for a mandatory one-week roll-over period as investors can roll-over their existing positions any time before expiry, depending upon the liquidity, hence, alleviating the roll-over week pressure to some extent,” Khan said.

PSX introduced new futures eligibility criteria and the 90-day maturity DFC with effect from August, which will start from July 26.

As per the new criteria, there will be no segregation of A, B categorisation, stocks will be selected based on such quantitative factors that measure real liquidity. Exchange traded funds (ETF) will also be eligible if certain conditions are met. However, such companies that have obtained stay order from court against any inquiry/investigation initiated by the commission will not be eligible. All eligible companies and ETFs shall be eligible for trade on deliverable futures and cash settled futures markets.

The new selection parameters are dynamic and can adopt to any market situation. More companies are now eligible to trade on the futures counter. Based on the recent notified list, 84 companies and 1 ETF are futures eligible.

“We appreciate the cooperation extended to us by the SECP in this regard whereby it approved the 90-day DFC regime and new futures eligibility criteria,” PSX MD said. “Pakistan Stock Exchange is continuously striving to introduce better and enhanced products for its stakeholders and market participants.”