The Karachi Stock Exchange (KSE) has decided to revise the exit mechanism limit to five percent applied on third session from earlier limit of 20 percent to stem the free fall of the local bourse.
The KSE Board of Directors, in its emergent meeting held on Wednesday, reviewed the current market situation and decided to take following measures with the approval of the Securities & Exchange Commission of Pakistan (SECP). Accordingly, all the relevant regulations stand amended and the measures stated below will be effective from the opening of market on Thursday, June 15, 2006.
The prevailing exit mechanism of applying lower circuit breakers with incremental percentages of 5, 10 and 20 shall be replaced by previous mechanism of applying lower circuit breaker of 5 percent or Re. 1/-, whichever is higher.
Short Selling in Futures Contract for the remainder part of June Futures Contract shall be prohibited.
Deposit of 100 percent margin in the form of approved securities in Futures Contract in place of existing requirement of depositing 50 percent margin in the form of cash and 50 percent in the form of securities shall be allowed.
CFS facility in 30 approved securities which are already eligible for Futures Contract in addition to securities currently available for this purpose shall be allowed within the prescribed CFS limits.
In addition to above, it has also been decided to extend CFS facility for securities held by the potential financier for his previous purchases instead of the current requirement of getting CFS facility against purchases in Ready Market only. However, this facility will be available from a date to be notified later upon completion of system modalities.
The meeting was called after the Index plunged 5.9 percent or 546.13 points on Wednesday (Since Monday it went down by almost 11 percent) forcing the front line regulator to revise the lower circuit breaker system, which otherwise would have trimmed 20 percent of the share values on Thursday.
As many as 78 of those stocks (in the ready and futures counter) closed at their ''lower circuit'' and could not break the lock for one hour, which under the circuit mechanism regulation means that those could tumble by 10 percent on Wednesday. However, the management decided to revise it to 5 percent and there is likelihood that the same would be applied on Friday''s trading. The step was taken after deliberations received from number of stockbrokers that they would arrange funding to bridge the yawning gap. Amount varies from one analyst to another, but it appears that the market is in need of Rs 12 to 18 billion of funds.
It was also decided to put a clamp of blank selling from Thursday at the futures counter. It was explained that a member''s limit at present is Rs 50 million, if say 50 percent is consumed, by any broker, it would not be utilised further.
Moreover, it was decided that under CFS, the investors would have the opportunity to borrow funds in 30 companies from the previous ceiling of 14 scrips. It would help investors to get funds in more companies from the earlier limit.
A leading trader said that the KSE decision about reducing the limit was a positive move and would help some investors to infuse fresh blood in the market as the equities would not have a free fall of 20 percent on Thursday as the exit mechanism system has been revised.
He said that the KSE decision not close the market for two-days would send a positive signal for the overseas investors and Pakistanis living abroad.
The Securities and Exchange Commission, the stock market regulator, on June 10 started a probe into the recent decline in the index. It has fallen 29 percent since closing at a record 12,273.82 points on April 17.