KARACHI, Aug 22: The continuous funding system (CFS) took off at the Karachi Stock Exchange on Monday with enthusiastic investor’s response, as the KSE-100 index gained 279 points. According to analysts, the CFS rate on Monday stood at 16.9 per cent with the level of investment at Rs16.3 billion.
KSE Chairman Yasin Lakhani told Dawn that the new system would fulfil the immediate liquidity need of the market and would create stability and restore confidence. He also said that the CFS would eliminate shortcomings in the badla system.
After months of negotiations between the government, bankers, the SECP and the bourses, an agreement on the introduction of the continuous funding system was agreed upon which replaces the controversial COT or badla system. That was made possible only when at the fag end of the last week, the stock market, drained of liquidity, saw a three-year low turnover and the prime minister himself had to step in to ‘sort out’ the issue after discussions with the parties concerned.
The Continuous Funding System Regulations, 2005 have come into force from Monday (Aug 22). Some analysts though that the CFS was a variant of the badla system, but majority of traders and market watchers pointed to some features of the system that were quite different from the 55-year old badla system. Some of the obvious differences include: a cap on investment under the CFS has been raised from Rs12 to Rs25 billion; the number of scrips eligible for the CFS is 14, which are twice those under the badla system; and the scrips included in the system would be reviewed every six months.
A notice issued to the members by the KSE on Monday stated: “Pursuant to the meeting of the board of directors and senior members with the prime minister and the adviser to the PM on finance, Continuous Funding System Regulations, 2005 have been approved by the SECP and the KSE board.”
The KSE also notified that scrips — PTCL, OGDC, NBP, FFC, D.G Khan Cement, PSO, Pakistan PTA, POL, PPL, SNGPL, BoP, MCB, Fauji Cement and Hubco — would be in the CFS system. The CFS facility would be available for a 30-day period against 10 days in the COT system, which traders believed would give stability to the market. Where the borrower opts to pay back and clear his position within the 30 days, the financier can utilize the sum again in the market.
Some of the major differences between the CFS and badla are that the CFS market will be available for the entire trading period against COT sessions, which takes place after the closure of the regular market. The CFS market will run parallel to the ready market and transactions will take place through the Karachi Automated Trading. And above all, the striking difference between the COT and CFS is that the financier shall keep the continuous funding system financed securities in a separate account maintained with the Central Depository Company of Pakistan Limited in order to ensure that these securities are not used for loaning against blank and short selling.
Monday, being the first day of the launch of the CFS, the market operated on the old system, but Yasin Lakhani assured that the bourse’s IT department was working tirelessly to prepare software to accommodate the new system. All said and done, the stock market, for the first time after the March debacle appears to be back on the rails.