KARACHI: The Securities and Exchange Commission of Pakistan (SECP) has approved the inauguration of Margin Trading System (MTS) in Karachi Stocks Exchange, Pakistan Today has reliably learnt.
According to sources, SECP Chairman, Salman Shaikh, had agreed and permitted the most awaited trading system and informed that the SECP would formally announce the launching of MTS in Karachi bourse in a couple of days. However, a spokesman from the SECP denied that the chairman had approved the launching and said that a preliminary draft of the MTS rules was under consideration at the SECP.
“Margin trading is a part of margin financing, securities lending, borrowing and pledging rules which are in the process of formulation,” he said. The spokesman revealed that after due consideration, the SECP would be sending the draft back to the consultants for final drafting. “The rules would then be sent to the Ministry of Finance for approval,” informed the spokesman.
Analysts are not banking much hope on the success of MTS and believe that the new initiative would face similar fate to what Future Margin Trading (FMT) had faced. According to the FMT, banks and financial institutions are required to provide 75 percent of the financing to investors possessing cash worth 25 percent.
“Like Future Margin Trading, the MTS would also make no difference at the bourse in terms of trading volumes,” an analyst at KSE viewed while talking to Pakistan Today. He asserted that levies like an interest rate of 13.5 percent, five percent KIBOR, 10 percent capital gains tax, withholding tax, members’ commission etc. were remorseless and had rendered the FMT unprofitable for small investors.
“The prevailing liquidity crunch and a host of taxes have increased the cost of doing business for the traders and this is a major reason for the failure of Future Margin Trading,” the analyst said adding “If a similar system could not bear fruits, why should we expect this one to make a difference.”
According to the analyst, investors are currently paying around 40 percent of already shrinking earnings on account of various taxes, a reality that was making business for the former uneconomical.