KARACHI : The Consultative Group (CG) on capital markets has recommended that the introduction of 'Margin Financing' (MF) would cater to the financing needs of the brokerage houses and their clients. These recommendations were given by the CG in its first report on 'Margin Financing' submitted to the Securities and Exchange Commission of Pakistan (SECP).
The CG, under the chairmanship of Aftab Ahmed Diwan, Chief Operating Officer (COO) at Central Depository Company of Pakistan Limited (CDC), submitted this report after detailed deliberations. The report said that 'margin financing' through brokers would cover various types of financing, including the use of third-party funding, to finance the ready market purchases--both proprietary and client--and to use own funds to finance the ready market purchases of its clients.
The objectives of the report on MF are to introduce a product to cater to the financing needs of the brokerage houses and their clients, and to monitor and regulate the overall credit extended to and by the brokerage houses, to provide funding access to retail investors and to introduce a financing mechanism based on the principles of counterparty credit risk, whereby the lending terms are defined by the respective parties involved.
This MF facility will only be available against Ready Market purchases for that day. The brokerage house intending to finance a Ready Market purchase by itself, or by its client, will initiate the funding request to an eligible financier, which has given a credit line for such purpose, to the brokerage house. The funding request shall be initiated on the date of purchase. The product of Direct Margin Financing through Banks, the report said, the product would facilitate banks to provide direct credit facilities to clients for obtaining financing against securities. The clients will directly approach the bank for credit line to obtain finance against securities.
The report has been forwarded by the Securities and Exchange Commission of Pakistan (SECP) to all relevant stakeholders for their feedback and comments. These institutions include the State Bank of Pakistan (SBP), Mutual Funds Association of Pakistan (MUFAP), Pakistan Banks Association (PBA), Investment Banks Association of Pakistan (IBAP), Leasing Association of Pakistan (LAP), Modaraba Association of Pakistan (MAP), stock exchanges and the National Clearing Company of Pakistan Limited (NCCPL).
The SECP had earlier communicated that all recommendations of the CG shall be shared with the wider range of stakeholders so as to have their input and develop consensus before implementing important policy decisions impacting the capital markets in Pakistan. It has been made clear that the said report contains recommendations of the CG only and does not reflect the views/proposals of the SECP. The SECP shall review the recommendations of the CG in light of the feedback received from of the stakeholders.
Copyright Business Recorder, 2009
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