No cap on CFS limit for 43 scrips: action to be taken against single UIN for multiple client codes

The Securities and Exchange Commission of Pakistan (SECP) will take action against multiple client codes against single Unique Identification Number (UIN). The SECP chairman, Razi-ur-Rehman, in a meeting between SECP and KSE held here on Thursday also directed the KSE management for strengthening its surveillance system in this regard.
Sources said that it was agreed at the meeting that both the Chairmen of SECP and KSE will take action against the single Unique Identification Number (UIN) for multiple client codes.
It was learnt that the meeting decided that there will be no cap on CFS limit for 43 scrips. However, the decision will be implemented after its formal approval and giving an advance notice of at least 30 days to the market participants. It was also decided that there would be CFS cap of Rs 15 billion for category B companies.
The meeting also agreed for amendments in the changes under Regulation 3(b) of the Regulations Governing Futures Contract, however, these amendments shall be implemented after notify the same through the Gazette of Pakistan by August 1, 2007. Regarding short selling, it was decided that Section 3(b) would be strictly implemented and fine would be imposed on any violation of the regulation and if any member involves in short selling, his membership could be removed.
The meeting also decided that the issues of institutional margins would be settled by August while CFS Mk-II would be introduced at the KSE by September this year.
The meeting was informed that the draft documents in respect of the Financial Institution Margining System shall be forwarded to the exchange by the NCCPL on August 24, 2007 and thereafter the exchange will arrange to convene a meeting of the committee formed by the SECP for the subject matter.
The KSE submitted a proposal on CFS limit review, along with the criteria for selection of eligible securities at the meeting. The KSE in its proposal said the matter of CFS limit was under discussion at board level and the SECP presented requirements for criteria of CFS eligible scrips and made the CFS limit review subject to completion of submission of proper changes in regulatory framework in respect of New Risk Management Regime, implementation of Position Limits, implementation of financial institutions margining system, rationalisation of CFS scrips and freezing of CFS position in outgoing scrips on the day that new CFS eligible scrips are introduced.
Subsequently, the KSE has implemented regulatory framework regarding risk management, position limits (after receipt of certain clarifications from SECP, KSE has notified implementation with effect from July 15, 2007), financial institutions margining system (under process by SECP nominated committee and NCCPL) and eligibility criteria of scrips for CFS.
The KSE proposed to introduce two categories of companies eligible for CFS, one of the basis of criteria proposed by SECP and the other category which has less stringent conditions in order to include more companies for CFS facility.
According to the KSE proposal, the category 'A' companies are including that have average daily impact cost of less than one percent, based on previous three months daily impact cost on an order size of Rs 500,000. The companies that have traded on more than 90 percent of the trading days during the last three months, have three free float of more than 20 percent of issued capital or 45 million free float shares, companies having turnover of more than nine million shares during the last three months and having profitability history of last three years were included in this category. The companies that do not have negative opinion in auditor's report on the companies financial statement (last audit report), that are not subject to any investigation by any regulatory body (subject to availability of information with KSE) and the companies that have market price above par value were also included in this category. However, mutual funds shall not be eligible. The KSE proposed that there shall be no cap on CFS limit in relation to the companies listed in this category.
The KSE in its proposal proposed the criteria for category 'B' companies and according to it, companies that have average daily impact cost of less than two percent, based on previous three months daily impact cost on an order size of Rs 500,000 will be included in this category while all other eligibility criteria, as applicable to category 'A' companies shall apply to this category companies.
It was proposed that there shall be a cap on CFS limit in relation to category 'B' companies which shall be Rs 15 billion. These companies shall have 50 percent of the prescribed position limits, currently CFS eligible scrips not included in both the categories shall be also eligible for CFS under this category and the period for review of eligible securities for CFS transactions shall be six months. The exchange shall give 30 days notice in advance to the market participants in relation to incoming and outgoing scrips.
However, after the expiry of the said notice period CFS positions shall be freezed and will be available only for release for settlement. Any unreleased position will be forced released on 22nd working day from the expiry of notice period.