KARACHI (September 29 2006): The Securities and Exchange Commission of Pakistan (SECP) has agreed to accommodate the Karachi Stock Exchange's request for implementation of the new risk management system to be put in place. The SECP has also agreed that the enhanced Continuous Funding System (CFS) will be introduced into four phases.

The KSE management team led by Managing Director M.A. Lodhi had extensive discussions with SECP Chairman Razi-ur-Rehman, Commissioner Securities Market and SMD team at Islamabad on Thursday on various implementation issues with respect to risk management measures announced by SECP vide its letter dated September 13, 2006.

The KSE management requested time extension for an orderly implementation of the said risk management measures and for a smooth transition to the new system.

The SECP, taking a pragmatic view considered KSE request and decided to revise the implementation schedule with a view to safe and orderly transitions of the market to the new Risk Management system.

It has been decided that from October 9, 2006 onward all shares financed under current CFS procedures shall be held in 'Blocked Account' with CDC. All outstanding CFS trades, which are not kept in 'Blocked Account', shall be forced released on November 3, 2006.

From November 6, 2006 the following will be implemented:

(A) New netting regime (except for client level netting, which shall be implemented from February 1, 2007.

(B) New VAR (Value at risk) based margin regime.

(C) New VAR based haircut regime. (D) All In-house badla will be banned.

The enhanced CFS Cap will be introduced into four phases as Rs 30 billion on November 6, 2006, Rs 37 billion on November 13, 2006, Rs 45 billion on November 20, 2006 and finally Rs 55 billion on November 27, 2006.

The Special Margins shall be based on 26 weeks moving average price and shall be applied in phases, as 50 percent of special margin shall be collected from November 6, 2006, 75 percent of special margin shall be collected from February 5, 2007 and 100 percent of special margin shall be collected from June 4, 2007.

The CFS financed scrips shall be enhanced to 40 scrips from November 6, 2006 and the Outstanding In-house badla as at November 3, 2006 will be phased out by November 30, 2006.

Short selling in deliverable futures contract shall be permitted from November contracts subject to member wide limit of 0.5 percent of each scrips Free Float. VAR based margin has been revised and 111 scrips shall have a margin of up to 20 percent.

Copyright Business Recorder, 2006