KARACHI, June 15: A thumping majority of the 80 stock brokers who participated in the meeting at the Karachi Stock Exchange on Monday stood united over the proposed solutions to the 21 concerns earlier discussed by the members inherent in the scrapped CFS or ‘badla’ mode of leverage financing.
A senior member present at the meeting said that the major demand of most brokers was that the proposed new ready board leverage should be ‘market-based’ or ‘system-based’, which could be shorn of the demerits of the old ousted product.
In order to remove major flaws of the ‘badla’, the brokers agreed to a proper enforcement of brokers’ capital adequacy. The leverage would be available to the clients through all members, it was proposed.
“Unlike that in the ‘badla’, there will be no systemic risk; but counter-party risk and the ultimate investor will be monitored through the UIN number,” said one major broker.
He said that in the previous ‘badla’ or CFS (or by whatever name called), the client was devoid of any responsibility. But in the proposed product, besides the broker, the ultimate client would also be watched through UIN to ensure that the margin is in place and mark-to-market losses are properly collected on daily basis. The broker would be restrained from giving collateral on behalf of the clients and they would also refrain from using clients’ collateral to settle dues.
Regarding margin financing (MF), the brokers resolved that it would be acceptable if it was broker-based. A stalwart among the broker community who unofficially conducted the meeting said that stock brokers had no issue with the Margin Financing product proposed by the SECP formed Consultative Group.
He said that the market would be better off with more than one ready board leverage product and there would be fair and healthy competition.
The brokers said that the proposals of the meeting would now be discussed with the management of the stock exchange and latter with the commissioner, Securities and Exchange Commission of Pakistan.
“If everything goes well, we may see a ready board leverage product in the market by end of the month,” says a senior member.
Source:http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/the-newspaper/business/systembased-leverage-product-by-juneend-669
