Capital requirements amended amid market meltdown

Updated 20 Mar 2020

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Stockbrokers monitoring share prices at the Pakistan Stock Exchange in Karachi on Friday.—AFP
Stockbrokers monitoring share prices at the Pakistan Stock Exchange in Karachi on Friday.—AFP

ISLAMABAD: While stock exchange continues to bleed, the Securities and Exchange Commission of Pakistan (SECP) on Thursday notified amendments in the base minimum capital (BMC) requirements, anticipating that it would support the market players.

The downfall in the Pakistan Stock Exchange (PSX) continued on Thursday with a decline of 286 points in the KSE-100 index to 30,129 in the wake of coronavirus that is taking its toll at global stock markets.

In a bid to support the market amid massive erosions, the SECP has relaxed BMC requirements by increasing the time for collateral deposits by 100 per cent.

Shauzab Ali, Commissioner Securities Market Division, forwarded a decision to Abbas Mirza, acting regulatory officer, PSX which was then issued in the form of notice to all stock exchange players.

The stockbrokers have to deposit collaterals under the prescribed percentage of shares belonging to the clients to the PSX, the valuation of these are conducted after 30 days and the SECP has relaxed the rules allowing the valuations after 60 days.

The SECP has already taken support measures in the ready market and the futures trade that were related to the National Clearing Company of Pakistan Ltd (NCCPL).

Talking to Dawn, a senior official of the SECP said that the move has been made to extend liquidity to brokers. “Besides, such measures will give a positive message to the investors too that the regulator was concerned about the situation and these sentiments are essential to ward off panic psychology in the market.”

However, the brokers are divided over the subject as the PSX Stockbrokers Association has expressed scepticism regarding the move saying the relaxation of 60 days to deposit exposures against the client’s assets under broker’s custody will only benefit the large players.

A statement by the association said the relaxation of BMC rules was part of the design to marginalise the majority of brokers. It also said that exposure not taken on timely basis on clients custody or delayed deposit of exposure proves that there was no custody risk at all and “it was the regulator’s wishful desire to bring in new brokers regime by aggravating custody risk.”

On the other hand, a key broker of the PSX said that many were linking the relaxation of BMC rules with the market crash of 2008, but the situation has changed.

Published in Dawn, March 20th, 2020