What should be done: In two weeks, the KSE index galvanized by points, with a points rise only last week. That was in spite of a bps spread between badla and future market. The following would be the mechanism under margin financing: Therefore, this product would make the rich brokers richer and the poor poorer, he added.
The PSX management has estimated that the current volume of badla financing in the stock market was around Rs10 billion, while that of margin trading system financing was Rs14bn. They had identified the product as the main cause of historic crisis. In conventional MF, the total risk is owned by banks and if borrower client loses the lender too.
But should the market players have bothered to waste time in searching an answer to such an awkward distant question, when it could be better employed in reaping gains at hand?
That, surely, would do nobody any good and the market would be back to square one.
The investors could avail the facility by providing 30 percent margin to the banks, but the banks are reluctant rather fearing to lend us support because in the past we have witnessed several crises and the market share values suffered heavy causalities," said Jan Mohammad.
But to remain safe from losing in a bear market, banks collect deposit of a certain percentage on the total amount of financing from the share purchaser e. Why he is against the globally practiced Margin Financing product, Habib says this product would be available to only potential brokers and not to needy ones.
One of the major differences between the internationally practiced MF and the local MF is the involvement of brokers in between financers lenders and financees borrowersThe News learnt.
Yasin Lakhani replying to a question that why he is against the introduction of modified CFS MK-II, said brokers with conglomerates of multiple businesses under one roof i. The very fact that badla is being phased-out without any significant phasing-in of margin financing has already started claiming its toll on the liquidity position at the bourses.
That, though is quite a remote probability for we are not given to thinking ahead of time. Habib is believed to be leading brokers seeking the resumption of CFS MK-II like product in the market after incorporating so many meaningful changes to make the product viable.
While in the proposed MF, brokers would bridge between financers and financees. Published in Dawn, March 7th, When drained of liquidity in July-August, one principal demand of the market participants was an increase in the upper badla cap from Rs15 billion to Rs25 billion and the number of stocks in CFS from 7 to Habib and Lakhani, both the brokers, claim to have majority votes in favour of their moves.
This would be communicated to the investor by the bank through a "margin call". The major obstacle in the smooth sailing of the equity market is the new mechanism "the margin financing" aimed to curb speculation and avert market crash, switching the traditional badla system.
It is this liquidity crunch that is compelling investors to stay on the other side of the fence and adopt a wait and see approach rather than taking new positions in the market. The banks should reduce the rates on margin financing this is currently being reported by certain quarters at close to 14 percent against the average repo rate of 7.
The prime minister having come to the rescue granted that wish.
The group felt the deficiency of a leverage product and submitted its recommendations to SECP in first meeting held on May 05, Several letters were sent to the stock market regulator and presentations were held to get extension for at least six months period.
But the market is now at the end of the road. As the CFS investment is set to hit the upper cap of Rs25 billion on Monday, investors are anxious to see if the KSE index would once again revert to moving in the range bound level between 7, to 7, points.
The question is what next? The official, however, said the committee has reported that in-house badla posed risks of unregulated market and could lead to misuse of client assets by brokers if they are in distress.
According to a leading trader, the representatives of the stockbrokers community, the board of directors of the KSE on the first place should not have agreed to the said mechanism. So this is the risk factor, which is hindering the execution of conventional Margin Financing here since its full-fledged introduction in Banks are prepared and equipped to introduce the product and implement margin financing product.
And the stock values responded positively.Jul 15, · As unending wait for leverage product continues in Karachi Stock Exchange after failure of earlier Margin Financing, CFS MKII, CFS and Badla systems and the. The 'seedha badla' financier enters into the system to lend money to the market player for a return.
This is measured as interest on the funds made available for one settlement cycle. 5 Badla system and Margin system in India (mi-centre.com To trade on margin.
Some features make margin financing different from. BADLA FINANCING, CFS & MARGIN FINANCING PRESENTED BY: mi-centre.comYAR SALEEM SHEIKH () BADLA FINANCING Definition: Badla financing is a mechanism to carry forward a speculative trade.
History: Badla was a carry forward mechanism for the transfer of shares which was introduced in India in the. CFS investment reaches finish line. Dilawar leverage buyers would have to look for alternative avenues of financing as badla mode is now fully exhausted”, says Abdul Rasheed, Investment.
The CFS Market is available for the entire trading period and runs parallel to the Ready Market. In addition, the CFS Market is available for one hour and fifteen minutes after the close of trading.
CFS or margin financing is the financing system available for investors who do not have money in their account to pay for the delivery on. CFS Transactions – Connection between Over-Leveraging and Systemic Risk The primary users of CFS financing are speculators.
our recommendations of more stringent daily mark-to-market requirements – mandating exclusive use of cash as opposed to shares – will further increase transparency in this market.Download