Futures rules to be amended

Moin Fudda, Managing Director, Karachi Stock Exchange, said on Wednesday that KSE management has planned to restructure the ''Future Contract Rules'', subject to approval by Securities and Exchange Commission of Pakistan (SECP) to avert crisis-like situation in future. At a press briefing at KSE auditorium Fudda said that the root cause of the recent situation was ''over-stretching'' by weak holders in March contracts, wherein speculative activity triggered the share prices, especially OGDC and PTCL.
Moreover, the plan of the weak holders was to square their positions before settlement of the ''future contracts''. However, the buying of particular shares from the ready market created difficulties for the weak holders who opted to buy stake in the future contracts. "High speculation in March contracts that prices would go further resulted in increase in spread between ready and future," he said.
Zafar Abdullah, Deputy General Manager of KSE, responding to a question, said that at one juncture the spread between the ''ready'' and ''futures'' was around 90 percent. Sellers in March contracts were carrying hedged position for ''ready'' market.
Another factor, which triggered this situation, was funds withdrawal by financiers for carryover trade as they feared that more slide in the share values would further increase investors'' liability.
He said that OGDC was the main culprit behind this situation, followed by PTCL. Both Scripps during the bullish run closed on the upper lock and OGDC in almost five sessions registered an increase of more than 37 percent, and PTCL around 20 percent.
As much as Rs 13 billion worth of financing was provided by five institutions against ''future contracts'', and nearly Rs 6 billion against COT, he pointed out.
He said that several proposals for the future contracts have been tabled and would soon be discussed in the board meeting to give them a final shape, for approval by SECP.
Fudda said that several methodologies are under discussion to create further depth in ''futures'' market which include unique global identification, help informing regulator about the buy and sell of the investor or the institutions and pre-trade verification. "These all are proposals and could be amended and revamped after getting consensus from the board of directors and the SECP", he said.
Regarding meeting of brokers, representatives of SECP and KSE with Prime Minister Shaukat Aziz on Tuesday night at the Governor House, the KSE managing director said that the Prime Minister wanted both stock market regulator and exchange "to go at the bottom of this crisis". The Prime Minister said that acceleration was undue and the downslide was too steep, and wanted KSE and SECP to strengthen rules pertaining to ''futures'' contract.
The Prime Minister also said that soon the Pension Funds rules should be simplified aimed at increasing their investment in the capital market, deepening its base, Fudda said.