In a significant development, the Securities and Exchange Commission of Pakistan (SECP), has approved amendments to the National Clearing Company Pakistan Limited (NCCPL) Regulations 2015 to introduce reforms in Margin Financing (MF) product which allows securities brokers to provide financing to their customers in a regulated manner.
These reforms will facilitate investors who wish to undertake leveraged trading and need finance for purchasing shares. As a result of these reforms, position limits and exposure limits have been liberalized to allow more liquidity. MF facility will now also be available to investors against their net purchases at the expiry of the Deliverable Futures Contracts period which will facilitate investors to honor their settlement obligations in the futures segment, thereby further reducing settlement risk.
Further, in consideration of meeting the funding needs of investors, the MF facility will now be available on T+1 against their net purchases in the Ready Market segment. Moreover, MF Financiers can now collect MTM losses in any manner mutually agreed under the financing agreement signed with the borrower instead of the earlier stipulated mandatory collection of MTM losses in cash only in case of a 5% decline in MF financed security value.
The brokers that meeting specified eligibility requirements shall be allowed to pledge 75% MF financed securities in favor of NCCPL to fulfill margin requirements against exposure in the Ready Market. Lastly, MF financiers will be allowed to release an MF transaction and roll over with revised MF transaction value after adjusting MTM losses and any payment received from their investors.
The aforementioned reforms have been approved after due consideration to any incremental risks and implementation of appropriate risk-mitigating features and were finalized as a result of comprehensive stakeholder consultation.