September 01, 2006	Friday	Sha'aban 7, 1427

KARACHI, Aug 31: The Securities and Exchange Commission of Pakistan (SECP) announced on Thursday that the date of Continuous Funding System (CFS) phase out was extended till December 31, 2006.

In a letter addressed to the managing directors of the three stock exchanges, Musarat Jabeen, Joint Director (SE), stated that the CFS was introduced to replace COT/badla financing in order to enhance the level of liquidity in the market while alternate modes of leverage financing were being developed.

“In this regard the SECP has reviewed in detail the current CFS system and identified several risks and inequalities therein,” the regulator noted.

In order to facilitate transparent and efficient financing for the market, the commission proposed CFS MK II which would adequately cover market risks associated with the current CFS system, added the regulator.

“Till such time that the procedures/modalities of CFS MK II are finalised and operating entity is identified and developed and made operational for CFS MK II, the commission has extended the date of CFS phase out till December 31, 2006”.

The regulator further says: “Till September 30, 2006, CFS will be available to the market under the existing CFS Regulations and practice”.

The notice stated that from September 30, 2006, CFS would be governed by amended CFS Regulations 2005 together with a netting regime and margin regime as detailed below.

“On implementation of the new interim regime, it is proposed to enhance the CFS cap to Rs40 billion for KSE and to Rs5 billion for LSE,” the regulations stated. The SECP notice followed it up with identification of new interim regime for the market which proposed a number of steps detailed in various Annexure.

(I)Amended CFS Regulations (2) New interim netting regime (3) New interim margin regime (4) Application of position limits (5) No in-house Badla financing would be allowed and (6) All CFS transactions are carried out with individual client codes duly registered at NCCPL under the UIN regime.

The SECP observed: “It is expected that there will be an overlap period of two months between CFS and CFS MK II”.

The notification gave September 10 as the deadline to revert back to the SECP for any comments or clarification to the above interim regime, so that implementation could be made by September 30.