KARACHI: The stock market took a surprise turnaround last week with almost a decade high weekly returns. Besides many other positives, the investors were also enthused by the visit of the newly appointed regulator who held deliberations with participants on market malaise.

The major issue that surfaced was the dry up of liquidity.

Meetings held between the Securities and Exchange Commission of Pakistan (SECP) chairman Aamir Khan and National Clearing Company of Pakistan Ltd (NCCPL) considered ways and means to facilitate flow of funds in the market.

According to sources a meeting of the board of directors of the NCCPL would be held on Aug 27 at which several important measures would be considered and approved to enhance trading capacity of market participants and make the market more liquid.

Although the NCCPL board would approve those on Tuesday, sources at both the SECP and NCCPL confirmed to Dawn that the following steps would come under consideration in the meeting and after the NCCPL board’s approval, they would revert to the SECP for a final go-ahead.

The likely decisions include, the 10 per cent additional margins being collected by NCCPL on top of Exposure Margins shall be discontinued; the 10pc additional haircuts being applied by NCCPL on margin eligible securities on top of existing haircuts shall be discontinued; basic deposit collected by NCCPL from brokers trading in the deliverable futures market shall be allowed to be used towards margin requirements of brokers with NCCPL to enable brokers to efficiently utilise their capital.

Also the revised slabs of liquidity margins shall be implemented and would be applicable only on large exposures of brokers. For managing risks, credit rating would also be taken into account while implementing the revised slabs.

Other measures to be adopted include the Repeal of Circular 20 of 2017 which dealt with unauthorised deposit taken by brokers. Circular 12 of 2019 has been issued on Aug 23 whereby brokers complying with certain conditions can pay interest on the subordinated loans taken from their directors, sponsors or substantial shareholders. It is expected to enhance the liquidity available with brokers.

Secondly, the blocked shares of PSX are proposed to be released. The commission had earlier unconditionally unblocked shares of PSX which had been blocked at the time of offer for sale, but due to misunderstanding at PSX the shares had remained static.

Following the clarification issued to PSX on Aug 21, the shares of PSX would now be unfrozen. It is expected to increase trading capacity of brokers and enhance liquidity.

Third, the minimum brokerage commission can be introduced at PSX and regulatory amendments in the matter may be framed in order to address anomalies in the market relating to charging of commission to different clients.

A major step that is likely to unleashed funds in the market is the launch of Murabaha Share Financing System already approved by the SECP. This system would allow financing in Shariah- compliant securities. It would become effective from next month.

It is also learnt that the SECP is in the process of allowing asset management companies (AMCs) on behalf of open and equity collective investment schemes to borrow from financial institutions for investment purposes, maximum up to 7.5pc of net asset of the scheme, within the existing overall borrowing limit of 15pc. These AMCs are currently allowed to only borrow from meeting redemption requirements. “This measure is a major step in attracting liquidity into the stock market,” sources said.

Published in Dawn, August 25th, 2019