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Karachi: Cheers for the exchange with SECP relaxing margin rules
SECP relaxes cash margins to facilitate MTS market
lenient cash margin requirements
SECP, the apex regulator has amended the Securities (Leveraged Markets and Pledging) Rules, 2011, to facilitate liquidity in the market.
According to Standard Capital, the amended rules now give power to the regulator to set down lenient cash margin requirements and allow individual investors to participate as financiers in the Margin Trading System (MTS). These rules provide a big regulatory framework for Margin Financing, Margin Trading, and Securities Lending and Borrowing.
Purpose
Trading activity at the bourse was at peril due to stringent regulations whereby lot of cash was required to use MTS but as per broker community’s request the rules have been bended. The amended rules relax the earlier mandatory condition of depositing at least 25% equity participation in the form of ‘cash only’ by the finances in MTS.
As you know that investors are short of cash these days due to choppy market hence SECP has finally bowed to new demand of prescribed reduced minimum cash margin requirement, while allowing a certain portion of the equity participation to be acceptable in shares of selected companies with necessary haircut for improved risk management.
Individuals allowed to be financiers
Also, the restriction of only corporate bodies to act as financiers in the MTS has been criticized in the past and now it is being waived and individuals meeting minimum eligibility requirements will be allowed to participate as financiers.
Minimum liquidity requirement removed
The amendments also remove the mandatory condition of prescribing minimum liquidity requirement for selecting securities eligible for Margin Financing (MF). This will encourage more securities to be available for funding under MF and generate more trading activity.
Changes to support liquidity and build investors’ confidence
Standard Capital welcome SECP directives since they are in line with prevailing tough market conditions since liquidity had become scarce currency. Here SECP has endeavoured to balance between effective risk management and the relief needed by the market. As reported the inclusion of individual financiers will help to increase and make available financing much needed by the market. This while improve ‘dried up’ trading volumes and bring the battered confidence of the investor.