SECP move to ease row with KSE: Continuous Funding System to be reviewed
By Sher Baz Khan
ISLAMABAD, Feb 5: The Securities and Exchange Commission of Pakistan (SECP) has decided to review the controversial Continuous Funding System (CFS) by the end of May.
The commission took the decision to ease its differences with the management of the Karachi Stock Exchange (KSE).
Introduced by former SECP chairman Dr Tariq Hassan last year by replacing the Badla financing system, the CFS has invited a lot of criticism from the brokers community and it has become impossible for the SECP to maintain this system after it got its new chairman, Razi-ur-Rehman Khan, official sources told Dawn.
They said the commission had to remove the ceiling of Rs25 billion from the CFS to make the KSE agree to the much-needed de-mutualisation of the stock exchanges.
A SECP announcement issued here on Sunday said discussions would be held with the KSE management with a view to determining the phase-in of the outstanding regulations so that the CFS risks were minimised at the earliest.
However, cap on CFS transactions for the KSE and the Lahore Stock Exchange (LSE) would continue till further notification.
The SECP would continue with the reform process initiated by the government to ensure rapid development of the financial and capital markets of the country as per international best practices.
“It is in this light that the CFS decision is being conveyed before the deadline so that hyper speculation and uncertainty is minimised if not totally removed,” said the announcement.
The commission, it said, would continue to engage all stakeholders within its purview to find win-win solutions on all issues.
The ministry of finance on Tuesday asked SECP to evolve a transparent, foolproof and effective margin financing system (MFS) that could complement the CFS in consultation with all stakeholders.
After its implementation, the capital market experts had termed CFS as another name of Badla financing. Badla financing had proven to the one of the few main reasons behind the stock market crash in March last that caused $12 to 15 billion loss to small investors.
The ceiling of Rs25 billion is one of the few blurred lines that distinguishes the CFS from Badla; otherwise both are considered the same.
The implementation of the CFS is equally interesting. The SECP had directed the stock exchanges to replace Badla with the Margin Financing System (MFS).
However, the CFS was introduced as sort of compromise between the KSE and regulator facilitated by Prime Minister Shaukat Aziz, in Islamabad, after the brokers threatened a market crash similar to that of March-2005.
