KARACHI STOCK MARKET NEWS

News : Stock brokers are about to convince authorities to re-launch the same leverage product (after rectifying it) on the Karachi bourse, which they had banned in April this year. They had identified the product as the main cause of 2008 historic crisis. The product was called the Continuous Funding System Mark-II (CFS MK-II). And this time the authorities (KSE & SECP) are naming it Margin Financing (MF)….One of the major differences between the internationally practiced MF and the local MF is the involvement of brokers in between financers (lenders) and financees (borrowers),… In conventional MF, the banks are the only eligible financing party to many potential stocks investors and there is no middle man role available (e.g. stockbrokers) in between the two.
    While in the proposed MF, brokers would bridge between financers and financees. In this system, unlike the conventional MF, any financially sound individual or institution can be the financer. They may include the stockbrokers themselves, banks (conventional & non-conventional), mutual fund(s) managing companies, leasing companies, mudaraba companies and etc, subject to the approval of Securities & Exchange Commission of Pakistan (SECP).
    But the major hurdle in launching the world wide practiced MF product here in Pakistan is that banks are reluctant to directly finance stocks investors, one of the senior professionals told with the condition of anonymity.In conventional MF, the total risk is owned by banks and if borrower (client) loses the lender too. But to remain safe from losing in a bear market, banks collect deposit of a certain percentage on the total amount of financing from the share purchaser e.g. 30 per cent (called margins), he explains and adds, margins are maintained upto the banks’ demand as per changes taking place in the share price.
The equal chances of losing financed money are also there in the local MF (Badla financing or CFS MK-II), but in this system the risk is owned by the middlemen i.e. broker and/or product manager like National Clearing Company of Pakistan (NCCPL) and/or KSE, he added….
Arif Habib, another former chairman-KSE, is of the view that the availability of modified CFS MK-II (e.g. CFS MK-III) is must in market to avoid downsizing at brokerage houses, which cannot continue to sustain with thin turnover in a cash strapped market these days.Habib is believed to be leading brokers seeking the resumption of CFS MK-II like product in the market after incorporating so many meaningful changes to make the product viable…. The News

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