The Pakistan Stock Exchange (PSX) is considering reducing the minimum brokerage commission to 1 paisa per share or 0.01% of the transaction value for fixed income Exchange Traded Funds (ETF).
The bourse in a notice said that as per Annexure-III of Chapter 4 of PSX Regulations, the standard rate of brokerage commission is higher of ‘3 paisas per share’ or ‘0.15% of the transaction value’ on every buy and sell transaction, which is not squared during the same trading day or only on one side which is squared-off during the same trading day.
The same rate of brokerage commission is also applicable on ETF, read the notice.
ETFs are investment products combining the returns offered by the stock market with the diversity offered by a mutual fund. Back in March, the PSX joined the list of stock exchanges in the world offering ETFs.
The PSX notice also shared some inherent features of fixed income ETF which distinguish it from equity class ETF, such as: the upside potential of equity class ETF is significantly higher than that of fixed income ETF as stock may hit the upper cap of the circuit breaker in a trading day but T-Bills/ PIBs are least likely to show much volatility, particularly when the interest rates are at a low level.
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It added that the current impact of brokerage commission of 0.3% (on both buy and sell sides combined) on a non-intraday trade will bound the investors to hold the units of fixed income ETF for at least 2 weeks (assuming an annual return of 8%) just to reach the break-even.
"Moreover, it has also been observed in other jurisdictions that the exchanges have either temporarily waived off trading fees for fixed income ETFs or prescribed lower trading fees for fixed income ETF compared to equity class ETF," it added.
Therefore, PSX has considered having a different structure of minimum brokerage commission for both classes of ETFs. “Accordingly, PSX is proposing to reduce brokerage commission for fixed income ETF to ‘1 paisa per share’ or ‘0.01% of the transaction value’, whichever is higher,” it said.
The PSX has also invited interested parties to provide comments on the proposed regulatory amendments.