The Board of Directors of the Islamabad Stock Exchange (ISE) has approved the proposed Margin Trading System (MTS) in principle as suggested by the Securities & Exchange Commission of Pakistan (SECP).
While appreciating the efforts of the Commission and the Committee to introduce MTS, the ISE Board was of the view that the MTS should be geographically neutral and leverage funds should be made available to the participants and investors without any discrimination of the physical location of the stock exchange and if any segregation is made at any later stage it will defeat the very purpose of the funds and would hamper the growth of the product.
The ISE Board has forwarded the following recommendations to the Commission:
1. Eligible Financier: The minimum requirement for financing amount should be reduced to Rs 2.0 million for a client of a broker as it will enable so many small investors to route their investments through MTS.
2. Eligible Broker Financee: Brokers of Karachi, Lahore and Islamabad stock exchanges will be the only takers of finance from MTS market by using their NCCPL terminals through its universal system without any advantage/discrimination of geographical location of the Exchange.
3. Eligible Securities: The NCCPL shall observe the eligibility criteria for selection of securities based on the statistics of most liquid exchange, however, the securities so selected shall be eligible for MTS at other two exchanges provided that the same are also listed thereon. Besides as mentioned at section C-vii, the companies should not be debarred for inclusion in MTS merely on the ground that it is subject to any investigation/enquiry by any regulatory body as such restriction before conviction would be against the principle of natural justice.
4. Release Period: The proposed MTS provides that MTS contract shall be limited to 60 calendar days, which will be subject to compulsory release by NCCPL at 1/4th of the original quantity at every 15th day. It is proposed that any partial release should start after completion of 60 days.
5. Earlier Released Share Positions: In case Broker Financee releases his open position before the force release by NCCPL, such released shares may also be qualified for fresh financing by MTS. Such mechanism shall maintain check and balance on the cost of funds.
6. Capital Adequacy - Broker Authorised Financier: The minimum net capital balance of broker authorised financier is on the higher side and it should be Rs 4.0 million instead of Rs 10 million with a view of adjust small and medium sized brokers and investors in the MTS.
7. Capital Adequacy - Broker Authorised Financee: In order to accommodate small and medium sized investors, the minimum net capital balance for the broker financee should also be Rs 4.0 million instead of Rs 10 million.
8. Capital Adequacy - Broker Authorised Financee: In view of the low capital adequacy requirements as proposed in para 6 & 7 above, leverage position in respect of MTS market should be 10 times of Net Capital Balance.
9. Authorised Financier's Risk Management: The risk management of all authorised financiers whether broker or non-brokers should be the obligation of NCCPL only.
10. Default Management - In case of AF Default: It would not be appropriate to hold credit of all participants till the recovery of shortfall amount in case AF does not deposit margin call. Instead the credit of counter party may be suspended if so needed.
11. Default Management - In case of Broker Financee Default: The operational mechanism for the MTS protection Fund should be evolved and got approved by the three stock exchanges before the deduction/contributions are made.
12. Blockade of UIN: In case of second default by the same UIN, it will be blocked for all types of markets for a period of three years.-PR
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