February 1, 2006	Wednesday	Muharram 2, 1427

ISLAMABAD, Jan 31: Adviser to the Prime Minister on Finance Dr Salman Shah on Tuesday asked the Securities and Exchange Commission of Pakistan (SECP) to evolve a transparent, foolproof and effective margin financing system (MFS) that could complement the continuous funding system (CFS) in consultation with all the stakeholders.

“The MFS should be evolved in such a way to remove irritants faced by all the stakeholders,” the adviser said while talking to the SECP Chairman, Razi-ur-Rehman, who called on him at the finance ministry.

Minister of State for Finance, Umar Ayub and President of Union Bank, Shaukat Tareen, were also present.

Mr Shah also stressed upon the risk mitigation measures to safeguard public interests at large and repose confidence and bring stability in the stock market operations.

He asked the commission to develop the data base for monitoring and evaluation of stock prices and volatility and gradually introduce value at risk indicators.

The CFS issue has invited a lot of debate these days after the brokers demanded the SECP to remove the Rs25 billion ceiling from CFS, a system that replaced the ‘badla financing’ few months back.

It may be recalled that the capital market experts had termed the CFS a second name of badla financing which had proved to be one of the few main reasons behind the stock market crash in March last year.

The ceiling of Rs25 billion is one of the few main features that distinguishes CFS from badla. The implementation of CFS is equally interesting. The SECP had asked the stock exchanges to replace badla with the margin financing system (MFS), a decision that had taken a lot of flake from the brokers.

However, the CFS was introduced as sort of a compromise between the KSE and the regulator facilitated by Prime Minister Shaukat Aziz, in Islamabad.

Hence introducing MFS at this stage seems impossible, a SECP official said. It was possible, however, to rename CFS with MFS after removing the ceiling from it, he added.

Meanwhile, an SECP announcement said the commission and KSE have agreed over a roadmap for demutualization of the KSE. In this regard, a memorandum of understanding was signed between the chairman SECP and the elected directors, the managing director of KSE and members of the board of demutualization committee in Karachi, the announcement said.

The MOU was arrived at after intense negotiations over the past ten days between a high-level SECP delegation, led by the chairman, and members of the KSE. Discussions took place in an amicable manner. As a result of these deliberations, it has been agreed that the future chairmen of the board will be elected from amongst the non-member directors of the exchange.

A detailed working meeting was also held between the SECP delegation and the KSE management, led by its managing director, M A Lodhi. The emphasis was placed on risk management and CFS mechanism with a view to assessing the risk management systems to determine the way forward. The proposed roadmap was also discussed and agreed between the chairman SECP and the Lahore Stock Exchange directors and management in a meeting held in Lahore on Jan 27.