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CDC to provide Settlement services for Government Securities traded on KSE’s Bond Trading System

 February 18, 2014  /   Blog  /   no responses  Comments

Being at the forefront of capital market development since its inception, CDC has introduced a number of initiatives and undertaken many challenges.  Recently, another major milestone was marked in the ever-progressing timeline of CDC with the initiation of settlement of Government Securities through KSE’s bond trading platform. This is a substantial development for Pakistan Capital Market as for the first time the retail segment will have a liquid and direct platform for trading in Government Securities through KSE’s Bond Automated Trading System (BATS).

KSE undertook this project at the initiative of the honorable Federal Minister for Finance, Revenue, Economic Affairs, Statistics and Privatization, Mr. Mohammad Ishaq Dar, who had urged the management of KSE and SBP to lay the groundwork. A committee was then established comprising of the senior most representatives of CDC, KSE, NCCPL, SECP and SBP as well as the leading money market brokers and banks. After much deliberation, the operational framework for the initiative was established. A key element to this endeavor was SBP conferring upon CDC special participant status in the Pakistan Real-time Inter-bank Settlement Mechanism (PRISM) and Real Time Gross Settlement (RTGS). The stepping stone for this was the launch of Investment Portfolio Services (IPS) by CDC whereby investors can open IPS accounts (directly maintained at CDC for investment) in GoP securities. CDC is the only non-banking institution to be given this capacity.

 

All trades take place on BATS, which is a trading platform developed by KSE for the trading of fixed income securities. Prior to the launch of this service, trading in government securities was done over-the-counter, and the retail involvement was negligible. The BATS platform will provide the transparency and liquidity which are essential in order to accommodate the retail segment in this ground-breaking initiative.

Formal trading began with a soft launch on January 31, 2014 at the KSE premises. Later, the official launch of the service took place on February 18, 2014 in Karachi at a local hotel. The invitees included senior management from CDC, KSE, Pakistan Capital Market and the banking sector. The guest of honor was the honorable finance minister, Mr. Muhammad Ishaq Dar, who held the honors of the gong ceremony.

Government Securities are issued by the State Bank of Pakistan on behalf of Ministry of Finance. These securities are considered low-risk primarily due to the fact they have sovereign guarantee of the government. Currently, this facility extends to three types of securities which include:

  • Treasury Bills: Short-term zero-coupon instruments that are issued at discount with maturities of 3-month, 6-month and 1-year.
  • Pakistan Investment Bonds: Long term bonds which pay fixed semi-annual coupon in addition to repayment of principal at maturity. They are issued at maturities of 3, 5, 7, 10, 15, 20 and 30 years.
  • Ijara Sukuk: A Shariah-compliant Islamic floating and semi-annual coupon bond.

Investors wishing to trade in government securities need to open their IPS accounts with CDC by submitting the account opening form along with fulfilling all the necessary formalities. A key feature of this facility is a facilitation agreement which needs to be signed between CDC and all the relevant parties involved (investor and broker). In addition to this, another integral aspect of this service is that trades are only executed for good value positions. This means that investors need to ensure availability of funds or securities prior to execution of the trade. All trades will be on a delivery versus payment mode, i.e. delivery will be only against actual payment received.

CDC has always strived for the development of financial markets and this initiative by KSE is one of the many that are testament to its vision. By investing in government securities, investors can have the comfort of risk-free returns through an efficient and effective framework that allows them to maintain control and broaden their investment horizon.


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