The investment last week under Continuous Funding System (CFS) remained pegged at its ceiling while the rates dipped by 80 basis points. Yet again the level financing through the CFS mechanism on the KSE remained stuck at Rs 25 billion throughout the week.
This has become an all too familiar scenario where the CFS session lasts for only a few minutes (even for seconds, on some days) and ends as soon as the limit of Rs 25 billion is hit.
On each day, the investors fell short of funding and, on average, over Rs 2 billion were failed to get funds from the lenders, resulting in reduction in exposures before the close of the market.
Of the Rs 25 billion, only financing worth Rs 8.9 billion was released by CFS on last Friday (September 23). This denoted a huge amount of funds being held as unreleased by borrowers (for a maximum of 30 days), as they do not expect easy availability of funds through CFS.
The weighted average rate of financing through CFS at KSE fluctuated mildly and closed at 15.7 percent. This represented a slight decline of 80 basis points on weekend-to-weekend basis.
Open interest in stock futures at KSE fell Rs 0.5 billion on weekend-to-weekend basis to stand at Rs 9.5 billion on Friday (September 23).
This slight decline occurred as it was the second-last week for the September stock futures, and few investors looked to square their positions before the beginning of the last week of trading in September stock futures. The weighted average stock futures spread at KSE fell sharply to 5.65 percent on Friday, showing a decline of 598 basis points as compared to previous Friday.
During last week, the SECP quite categorically quashed all rumours regarding any possible increase in, or removal of, the upper limit of Rs 25 billion for CFS at KSE. With offloading of positions seen in the stock futures market, the total 'official' leverage declined by Rs 0.5 billion on weekend-to-weekend basis. However, alternative sources of financing, e.g. outside market financing, margin financing, etc were still being used by investors.