The futures contract counter at Karachi Stock Exchange (KSE) witnessed smooth swapping, and per trend nearly 51 percent transaction was transferred to January contract, easing the situation. In the derivatives market, the transition from December to January was in line with historical trend.
It was observed that in the last few months, around 40-50 percent of open interest had been transferred to new futures. This time also, 51 percent of December's open interest (Rs 14.2 billion at the end of previous week) was transferred to January futures during the week, assuming that investors, selling December contracts, were simultaneously buying January futures.
At the end of December contract, open interest declined by 23 percent to Rs 11 billion. This Rs 11 billion amount excluded December contract's unsettled position of Rs 6.9 billion on Friday, which would be settled as regular market transaction as per T+3 system, and hence is no more a part of total open interest position in the future market. The unsquared amount is generally settled through delivery, CFS financing and outside market financing.
Annualised ready-future spreads for the new January contract were up by 1095 basis points, to 17.9 percent on Friday, on week-on-week basis.
Increasing demand for funds in the future contract, where investors leveraged by Rs 11 billion in January contract in a single week was primary reason for this rise in spreads.
The weighted average CFS rate at KSE was recorded at 17.5 percent on Friday, marginally down by shops over previous Friday rate of 17.6 percent. During the week CFS investment at KSE remained unchanged at cap of Rs 24.5 billion.
At LSE, total badla investment on Friday was Rs 0.50 billion, up by 2.4 percent, as compared to Rs 0.49 billion investment amount at the end of previous week. Moreover, weighted average badla rate, at LSE, increased by 28n0 basis points and closed at 19% on Friday.
During 2005, on average financing cost via CFS/badla mode of financing was seen on the higher side with average CFS in 2005 recording at 16 percent versus that 10 percent in 2004. Higher leveraging demand amid rising equity values, coupled with upward movement in interest rates was the major reason behind increase in rates.