The stocks futures open interest at Karachi Stock Exchange fell during last week, and settled at Rs 15.3 billion on Friday, December 16, as selling in some scrips forced the investors to offload their positions.
Futures contract investment fell by Rs 0.75 billion from previous Friday''s (December 9) open interest of Rs 16.04 billion. The decline in open interest was caused by intra-day corrections during the week where equity prices used to rise in the early part of the trading session, only to see a great chunk of those gains wiped off by the end of the trading session.
This behaviour of KSE-100 Index may have caused leveraged buyers to square their positions during the week.
An analyst from Investcapital Securities said that the low stock futures spread could be attributed to offloading of positions by leveraged investors, which shrank the spreads in several heavyweights. The weighted average CFS rate depicted a sharp rise of 201 basis points, compared to a week ago. It rose to 17.5 percent on previous Friday (December 16) against 15.4 percent seen on December 9.
During the week, the rate went as low as 14.8 percent on Wednesday, but then increased to its current level, owing to higher rate in heavyweights like MCB and PTCL. Moreover, the consistent decline in the futures spread during the week showed higher interest of investors in ready market, which also explains the rise in CFS rate.
CFS investment at KSE remained stuck at Rs 25 billion.
At LSE, the CFS rate stood at 20 percent on Friday, showing a slight increase of 30 basis points, compared with a week ago.
"It has been well over five months now, since the new CFS system of financing was introduced at KSE. However, up till now it was functioning more or less similar to badla financing system, as the required IT system for executing continuous financing was not available.
This has finally changed and the KSE management announced on Friday that the CFS would be executed simultaneously with the ready market and that the financing would also be available during market hours as opposed to previous practice of raising funds after the market timings.
It is believed that the availability of financing during the market hours could lead to softening of CFS rates as investors would instantaneously know, whether or not the required financing for shares is available.