On the recommendations of Task Force, National Clearing Company of Pakistan Limited (NCCPL) has proposed some changes in the Risk Management Regime of Deliverable Future Contract (DFC) and Margin Trading System (MTS). The task force was formed by the Securities and Exchange Commission of Pakistan (SECP) to propose measures to enhance market liquidity.
The task force comprised SECP personnel, NCCPL's and PSX's management representatives and the TREC Holders. The task force recommended few measures in DFC and MTS so as to improve the stock market's liquidity. Based on the recommendation of task force team, the NCCPL management has proposed following changes in Risk Management Regime of DFC and MTS, including the inclusion of Category B securities in accordance with the new moderate criteria along with the existing eligible securities, which will then be classified as Category A:
Deliverable Futures Market (DFM): The initial VaR based margins on securities in Category B will be VaR +15%, additional margins should be deposited in the form of 50% Cash and 50% in Margin Eligible Securities. The proposed increase in margins would provide additional collateral as back-up to NCCPL in case of closing out or executing delivery in the futures contract written on LIST B securities that have comparatively less liquidity than LIST A securities. All other Risk Management measures as currently applicable for Category A shall remain applicable on Category B.
Margin Trading System (MTS): Category B securities will be introduced in Margin Trading System with enhanced risk management by amending existing eligibility criteria mainly encompassing Impact Cost, Trading history, Average daily turnover, public float, listing history etc. and the following:
Cash Financing Participation Ratio (FPR) of 15 percent as applicable for existing Category A Securities will remain applicable for Category B Securities. However, the aggregate value of such MT (R) Transaction margins and FPR shall always be higher of 30 percent or VaR Estimate of that particular MT Eligible Category B security.
All M2M are still to be paid daily in cash.
Special Margin shall be payable on daily basis only where the average transaction price of the Financee's proprietary position or his client's position is different from 26 weeks moving average price of that Security in the Ready Market. In case where the average transaction price of a Security exceeds the 26 weeks moving average price by more than 10% then special margins shall be payable equal to the difference between average Transaction Price of the gross buy position and 26 weeks moving average price. Such margin can be deposited in the all forms of acceptable collateral.-PR
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