COT verses margin financing

Various press reports indicate that the SEC, regulatory authority of Pakistan is contemplating phasing out/elimination of the present system of financing, prevailing in the stock exchanges in Pakistan, more popularly known as COT (Carry over Transaction) or Badla.
'Letters to Editor' have also appeared in the past criticising the COT system. Through your columns, I would like to present the other side of the picture.
Under the present COT system, members pay margins to the Karachi Stock Exchange and obtain similar margins from their clients. Under Margin Financing, the same feature will apply, clients paying to members and members paying to banks/financial institutions.
Thus, I see no essential difference between the two. Under Margin Financing, rates would vary from bank to bank and, within the same bank, from borrower to borrower.
Again, within the same brokerage house, rates would vary from client to client, bulk clients getting a better treatment rate-wise than retail clients. It is even possible that retail investors may not be able to get
Margin Financing from the brokerage house on the basis of administrative costs involved in the monitoring of small accounts.
On the other hand, COT, as practised presently, is a continuous auction system depicting financing rate every minute of the day with continuous inter play of market forces.
The rates are universal at any given point of time, for all market participants, irrespective of their volume. Can there be a more efficient system? As for the systemic risk, the need is to fine tune the present COT system which would include revision of the list, last priority of claim against COT transactions, in case of default, no falling back of claims of COT transaction on the Clearing House Protection Fund and claims linked to the counter party, only involved in the COT transaction in case of default. Discarding the COT system altogether is like throwing the 'baby with the bath water'.
Liquidity in trading is an essential requirement of any vibrant stock exchange and the present liquidity at the KSE is largely attributable to the existing COT system. I am afraid that the induction of Margin Financing as a complete substitute of COT, may affect the liquidity of the market, as well as give a serious jolt to the existing Index level.
As for the margins, I may add that the present margins as required by the stock exchange under COT, are quite stringent and work out to as much as 50% of the value in some of the cases.
On average, deposit payable by a market participant of say Rs 300 million would work out to at least 20%.
With provision of circuit breaker at every fall of 5% in value and payment of mark to market difference every day, 20% seems to be quite protective under all normal circumstances.
I would urge the authority and the stock exchanges to review their strategy dispassionately and avoid a decision which they may disturb the present tempo of the capital markets.