KARACHI, Nov 17: The conversion of ‘in-house’ badla to the Continuous Funding System (CFS) would be a Herculean task for the management of the stock exchanges for no one really knows the amount that passes each day as ‘in-house’ badla in trading at the bourses.

On Saturday, which is a non-working day for the Karachi Stock Exchange, the management has decided to hold a special session for conversion of ‘in-house’ badla to the CFS. The regulators are determined to bring all unregulated ‘in-house’ badla into the regulated CFS by the end of this month.

A leading broker when asked of what he thought could be the amount of ‘in-house’ badla just shrugged his shoulders. But a market pundit pointed out that in one of its communications earlier, the chief regulator had quantified ‘grey market’ to be in the region of a staggering Rs90bn. If that meant the ‘in-house’ badla, it would be about twice the maximum ceiling of permitted badla financing (CFS) that amounts to Rs55 billion.

In the special session, which would he held from 10:00 in the morning till 2:00pm, the conversion through ‘automated interface on Saturday’ the regulators have agreed to a little over half a dozen conditions, the foremost of which is that the facility would “only be available in 71 CFS eligible scrips already notified”.

According to the agreed schedule between the Securities and Exchange Commission of Pakistan (SECP) and the bourses, the in-house badla has to be totally eliminated by November 30.

Other conditions/parameters agreed between the SECP-KSE for conversion included: (2) second ticket sell/buy will be entered by members (3) shares must be placed in Blocked Account (4) the existing risk management measures shall be applicable for conversion process and (5) Cap on Premium rate will apply as already notified (6) for the purpose of conversion, Capital Adequacy and Pre-Trade verification of margins and Ready Market purchase requirement will not apply. However, any shortfall in the capital adequacy of members due to conversion shall be brought within current prescribed limits latest by November 30, 2006.

Those members who are availing this facility through the Special Session are required to furnish the following details in advance in respect of in-house badla as on November 13, 2006, before hand: (I) Symbol, (II) Quantity, (III) Client name & identification number for both financier and financee and (VI) rate of premium.

In addition, the KSE informed members in the morning on Friday that “only those members who will furnish the information regarding in-house badla by 5.30pm on Friday and also ensure placing of shares in Blocked Account with CDC” would be allowed to participate in the Special session on Saturday.

A member said that the results of the special session would be of great interest to investors, for if it can be concluded without a major glitch, it would be a first step in conversion of ‘grey market’ into a ‘regulated market’.