ISLAMABAD, June 3 Stakeholders comments have been sought on draft Securities (Margin Financing, Lending, Borrowing and Pledging) Rules, 2010, till July 5.
The major part of the rules, according to SECP, is based on a concept paper on “Margin Financing” which was finalised after following an extensive consultation process with relevant stakeholders, including State Bank of Pakistan, Mutual Funds Association of Pakistan, Pakistan Banks Association, Investment Banks Association of Pakistan, Leasing Association of Pakistan, Modaraba Association of Pakistan, the three stock exchanges, Central Depository Company, and National Clearing Company of Pakistan Limited.
A spokesman for the commission said that draft rules have been developed considering international best practices and to provide a regulatory framework on Margin Financing, Securities Lending and Borrowing (SLB) and Pledging of clients' securities. The rules have been placed on SECP's website.
One of the distinct features of margin financing under the draft rules is identification of the counterpart which would enable financiers to assess the credit worthiness of financees, thereby minimising any possible systematic risk and interruptions to smooth functioning of capital markets.
The rules offer investment flexibility whereby financiers would be able to choose scrips for financing based on their analysis of fundamentals and liquidity position; the requirement of maintaining minimum equity participation ratio by the financier would ensure better sharing of risk between the parties.
The SLB model envisages the Authorised Intermediary to act as a facilitation agent between borrowers and lenders of securities and provide an automated platform whereby SLB contracts would be executed between the parties. Further, as per the existing practice, clients' securities are pledged for a variety of reasons by brokers, including pledges in favour of exchanges and the clearing company in respect of margin requirements and pledges in favour of financial institutions for financing arrangements.
The draft rules seek to provide conditions and requirements that would govern the pledging mechanism and also restrict pledges which are executed in contravention thereof.
The SECP has said that the Margin Financing Rules are not only expected to introduce effective disclosure requirements to ensure greater transparency but also to cater for the financing needs of capital markets while providing retail investors with an easy access to financing against shares.