KARACHI, Aug 29: The Karachi Stock Exchange took a step forward in promoting the derivatives market by appointment of Market Maker (MM) in Stock Index Futures.

At a press conference held on Wednesday, KSE Managing Director Nadeem Naqvi explained the modalities, terms and conditions of the Market Making Agreement signed with the brokerage firm, AKD Securities Ltd. The bourse had accepted the role of MM in KSE-30 based Stock Index Futures. It had also committed to execute a minimum of 100 contracts daily and up to 500 contracts within six months.

The KSE MD said that Stock Index Futures Contracts were launched as the central element of derivatives segment, yet the lack of liquidity was the biggest hurdle in their development, which included Cash Settled Single Stock Futures and Stock Index Futures. The MM would provide and execute the above mentioned contracts with quantum in value traded expected to grow more than five-fold to Rs32.5 million per day, from Rs 6.5 million per day in six months’ time. He said that the bourse hoped to introduce 'options' in the next phase.

Present on the occasion, AKD Securities CEO Farid Alam discussed the role of MM in detail. He said that the MM would be useful for speculators; hedgers and arbitragers. While volatility would be reduced, volumes would take a leap, he said.

Naqvi said that the Securities and Exchange Commission of Pakistan (SECP) had provided supportive role and expressed gratitude from KSE to the Commission for granting approval for wavier of basic deposits in Stock Index Futures and Cash Settled Single Stock Futures.

“The SECP had also approved regulations governing Exchange Traded Funds (ETFs), rightsising of margining regime for (Margin Trading, Stock Lending and Borrowing) and approving pro market amendments in regulation of governing Market Making at KSE, in the best interests of Capital Market Development in the country,” he said.

In regard to other developments, the KSE MD said that Lahore Stock Exchange’s (LSE) request to allow KSE-30 Index based Futures trading at Lahore Stock Exchange was approved by the KSE Board. The KSE and Bombay Stock Exchange (BSE) were in advanced stage of talks over cross listing of indices on Futures Contracts. The recent circular from the Reserve Bank of India (RBI) allowing Pakistani individual and corporates in Indian company shares was a welcome development and should help in accelerating the cross listing process between KSE and BSE, he said.

“Discussions with Dubai Financial Market (DFM) and Abu Dhabi Securities Market for cross listing of benchmark indices had also taken place,” Naqvi stated, adding: “liquidity begets liquidity”.

He mentioned that the biggest challenge in derivatives had always been to kick start the market. Citing the Indian example, he stated that those markets took half a decade and their derivative market remained moribund until BSE appointed Market Makers.