Market participants, including brokers and investors, tend to remain pessimistic about the depleting volumes at Karachi Stocks Exchange (KSE) as the government authorities on Thursday moved to make the Margin Trading System (MTS) more attractive for the traders.
The National Clearing Company of Pakistan Limited (NCCPL) on Thursday notified the stakeholders about rationalization of the transaction fee to be paid by the financiers trading in the MTS from Rs3 to Rs2.25.
Further, the NCCPL has also acted in line with the cash-strapped investors through removing the condition of submitting an initial contribution of Rs0.25 million to the MTS Protection Fund by the MT financiers.
The financees, under the MTS rules, were to submit the said amount along with an addendum to the clearing member agreement, net capital balance certificate and an undertaking for collateral utilization, at the time of their admission in the margin trading. “We are pleased to inform you that NCCPL has reduced MTS transaction fee for trading financiers from Rs3 to2.25 per Rs100,000 value of MT transaction multiplied by number of days of MT contract,” said a notice issued by the NCCPL on Thursday.
It added that: “The NCCPL has also waived the initial contribution of Rs250,000 to MTS Protection Fund for all margin trading participants.” While the NCCPL management termed Thursday’s move as order of the day, investors and brokers at the country’s largest bourse viewed the fresh incentives as a part of government’s endeavors to lure investment at the volumes-starved equity market.
“There would be no major impact as such as these (new changes) have been enforced after approval” by the SECP, Muhammad Lukman, Chief Executive Officer of NCCPL, told Pakistan Today. The CEO said these measures were taken to provide for the MTS’s close out mechanism which was different from normal share trading at the equity market.
The investors, however, think otherwise. “This is to generate volumes through attracting more investment to the market,” a senior broker said. Not upbeat about success of the new incentives, the broker said all the investors, particularly smaller ones, were presently concerned about was the Capital Gains Tax (CGT). “The investors would not come due to confusion over Capital Gains Tax,” he viewed. The broker said the investors had no faith in the government institutions and were cautiously looking at the federal budget. A small investor seconded the view saying if the government failed to remove the CGT many of the investors, stock members and brokers would find it hard to continue with their businesses at the equity market. “They are waiting for the removal of CGT in the next budget,” he added. The investor also backed the broker’s opinion that nothing less than removal of the ill-defined CGT could bring investors back to the stocks market. About waiving of the contributions for the MTS Protection Fund, the trader said the investors had no money to pay under the head of protection fund. “Many of the financers faced with huge budget deficits in their unprofitable businesses had expressed their inability to pay the amount… so they had to remove it,” the investor claimed. It may be recalled that the MTS Protection Fund was set up as a risk-management measure to be exclusively utilized for the satisfaction of losses of the MTS market.
The long-awaited three margin products, Margin Trading System, Margin Financing System and Securities Lending and Borrowing, are said to have failed to increase volumes at the country’s bourses due primarily to, what the market participants, the controversial taxes like CGT.
Currently, daily trading volumes at the KSE range between 40 and 100 million shares and that too on the back of foreign and institutional interest, as the individual investors continue to keep aloof from the “heavily-taxed” share market.
