April 24, 2007	Tuesday	Rabi-us-Sani 06, 1428

KARACHI, April 23: Client-Level Netting (CLN) in Deliverable Futures Contracts went into effect from May Deliverable Future Contracts, starting on Monday.

The SECP issued a directive on the subject on Saturday.

Shares at the KSE came under pressure on Monday. But it was not solely because of the apex regulator’s unwillingness to give further extension in CLN. The trend reflected a combination of several factors including the cap on CFS at Rs55 billion; the understandable investors’ nervousness at the index level of 12,000 and the current being the ‘roll-over’ week.

Some of the brokers expected one or the other “good news”: Of either an increase in CFS or the extension in CLN. But none of those materialised. “I am worried over the extra burden that I will have to bear because of margin requirements,” said one broker, who was making money but not as much as the big players.

Haroon Askari, Chief Operations Manager at KSE, said in response to a query that it was not for the management to comment on whether the margins were low or high. But he did say that the Board had earlier approved implementation of CLN from May Deliverable Future Contracts.

The following were the contents of the SECP letter:

“Under the New Risk Management Regime, the CLN in the Deliverables Futures Contracts was mutually agreed to be implemented with effect from Feb 1, 2007. However, due to non-availability of hardware, at the request of the Exchange, the Commission, while taking a considerate view, granted extension in CLN implementation till beginning of April Deliverables Futures Contracts”, the SECP stated and went on to add: “Subsequently, the Commission had granted another extension in the implementation of CLN in Deliverables Futures Market for a period of 30 days on the request of the Exchange”.

The SECP argued: “The Exchange requested this extension on the grounds that the implementation of the margining system of Financial Institutions (FIs) had been delayed, which was due to be implemented before the beginning of April Deliverables Futures Contracts. The Exchange in this letter, also committed to get the FIs margining system implemented within 30 days, i.e. before the beginning of May Deliverable Futures Contracts”.

The apex regulator stated: “Now, KSE, in its April 18 letter, has requested further extension in implementation of CLN in Deliverables Futures Market, citing the reason that FIs margining system has still not been implemented. The Commission is of the view that the KSE, in collaboration with NCCPL, should expedite the process of implementation of FIs margining system at the earliest”.

And the SECP concluded: “In view of the above, the CLN should be implemented with effect from May Deliverables Futures Contracts and no further extension would be granted in this respect”.

The letter was signed by Zafar Abdullah, executive director, Securities Market Division, who under the recent arrangement sits at the SECP offices in Karachi.