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KARACHI: The Karachi Stock Exchange announced the launching of Stock Index Futures Contracts (SIFC) from January 2012.
In a notice delivered to members on Wednesday, the exchange stated that SIFC would be started in two sectors: the Oil & Gas and the Banking.
In oil and gas, four stocks (OGDC, POL, PSO and PPL) would be covered which would constitute 89 per cent of the entire free float of the sector. Seven stocks would be tradable in Banking (MCB, NBP, UBL, HBL, BAFL, BAHL and ABL), which would amount to 82 per cent of the banking sector’s free float.
The exchange explained modalities of the new product. But traders were not quite jubilant over the initiative.
They pointed out that “Futures Contracts” were already in the market, but were unable to catch investor attention.
Mohammad Sohail, CEO at brokerage Topline Securities explained why: “In order to develop Derivative Market, there has to be a Market Maker,” he said and added that the country’s stock markets had not so far found any Market Maker in any derivative product.
In regard to the SIFC, the bourse stated in the notice on Wednesday that the product offers opportunities to investors wishing to gain exposure in specific sectors without actually buying each share in that sector.
“Such investors can use SIFC on Sector Indices to take positions in an entire sector which can be purchased and sold easily and inexpensively,” the bourse stated. So what exactly are SIFC Contracts? The Exchange defined SIFC contracts on tradable benchmark indices as agreements to buy or sell a standardised value of a tradable sector index, thereby allowing investors to track performance of a basket of securities in a given benchmark index.
The mark-to-market losses are collected/paid daily, with cash settlement at Rs5 per index point movement and concluded on maturity (without delivery requirement).
Secondly, the KSE announced that ‘Basket Order Window’ was being made available in Karachi Automated Trading System (KATS) to facilitate efficient hedging mechanism for small investors, high net worth individuals and financial institutions. The Exchange stated: “The Basket Order window shall allow investors to place multiple market orders in ready market with same time-priority through a single mouse click for all stocks within a tradable sector index. Once an order set is placed, the basket window will show the execution status for each line item in the basket.”
As all the above could sound Dutch to an average member and investor, the KSE management has arranged a series of awareness presentations for market participants which would encompass introduction to tradable sector indices, their trading; working; naming conventions and Risk Management regime. Presentations would be held on Nov 25; Dec 1; 8th; 15th and 22nd.
