The margin financing would act as main tool to safeguard the interest of investors from the volatile conditions of the stock market and easy way out to cover risk management issues. This was the theme of a seminar conducted at the Institute of Bankers in Karachi on Thursday where representatives of Muslim Commercial Bank, Picic Commercial Bank, National Clearing System, prominent Karachi Stock Exchange Member Arif Habib and senior banker Kasim Parkeh explained the issues related to margin financing.
Margin financing would start from June 3 and 135 eligible securities have been earmarked for this system. Banks and other financial institutions would devise and design modules to provide margin financing in above-mentioned securities.
Arif Habib said that banks would easily run the margin finance system at their institutions if they simply monitor and maintain the margin mechanism with a trained and skilled staff.
"The system should be checked on daily basis and also on the real time, help convincing the system that it is the better option available to cover risk management", he said.
Earlier, the COT system has been running for ages and was cost-effective, but stock market regulator was of the view that because of the volatile conditions of the stock market, on several occasions, it destabilises the risk management and created havoc.
Nearly half dozens banks and financial institutions have either prepared margin financing mechanism or in the last stages to complete the module, providing facilities to investors.
The banks would handle the account of the investors in association with stockbrokers, with an option that the portfolio (shares) would only be handled by the investors, with banks have the responsibility to execute the transaction.
Replying to a question, Kassim Parekh said that banks and other financial institutions have ample room to handle the margin finance. The paid-up capital of banks is around Rs 160 billion where the COT investment on daily basis ranged between Rs 20 and Rs 25 billion. "Banks have enough capability to cater large sum of margin finance", he said.
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