KARACHI, Nov 16: For the carryover trade (COT) or ‘badla’ market at the stock exchange, the week ended Friday, marked a milestone, since the bourse’s management implemented the new rule of allowing borrowers to carry over leveraged positions for 10 days, from Monday, Nov 11.

The KSE had brought about change in COT procedure by virtue of which from Nov 11 all carryover transactions are for a period of 10 trading days. During the period, financee (borrower) may release COT on any day before completion of 10 days, but the financier (lender) would be able to release COT only after completion of 10 days period.

This change from the COT financing on daily basis had been introduced to mitigate the potential risk of sudden and massive withdrawal of financing from the market.

“Any new idea takes a bit of getting used to and the same can be said of the 10-day badla idea,” said Khalid Iqbal Siddiqui, analyst at InvestCap. He stated that the badla financiers were slightly hesitant to invest amid settlement and other problems with badla brokers.

The maiden 10-day COT session that began on Monday, Nov 11, resulted in some problems for weak holders, who were forced to leverage their positions at very high rates; the weighted average rate topped 30 per cent on Monday.

“However, with borrowers now armed with the luxury of being able to release their positions in search of lower rates, badla financiers realized that such high rates were unsustainable,” said the analyst, adding that it resulted in progressive decline in weighted average badla rates during the week, to 17.5 per cent on Friday.

Badla volume at KSE and LSE decreased to 207 million shares at week-end, from 215 million shares of the previous Friday. Badla investment at KSE and LSE combined stood at Rs6.8 billion, compared with Rs7.3 billion at the previous Friday, which analyst said denoted that there hadn’t been much of a change in amount of weak holdings.

But the analyst pointed out that a new development was the slight change in composition of total badla investment, which comprised released and unreleased investment. Unreleased badla investment that used to be around 2-3 per cent of total investment, was now much higher as a portion of total investment, indicating that few borrowers were taking advantage of the new 10-day rolling COT system.

Humaira Zaheer, analyst at IP Securities, stated that during the week, the COT market had remained edgy on concerns about PSO’s privatization and an ongoing ‘hide and seek’ game at the political front. The analyst said that the buying splurge in the beginning of the week stood pretty low as the strong delivery holders or institutions remained shaky to the new COT system and withdrew their cremation from the market, leaving the weak holders for a wild goose chase. “Later, the announcement of a pre-bid meeting (of PSO prospective bidders) on Nov 15, inhibited the average badla rate to revert to its previous week’s average COT rate,” said the analyst.

Going forward, analysts at both InvestCap and IP Securities expected badla rates to return to their regular levels with better understanding and acceptance of new COT rules and once some issues regarding the 10-day badla were resolved between the brokers and financiers. There looked to be no problems on the liquidity front, since rates in inter-bank money market had eased off considerably making the market unattractive for lenders. Inter-bank overnight repo rates had remained below 1 per cent on Friday, while those for one-week also stood as low as 1.5 per cent.