Professional Documents
Culture Documents
SEGMENT
DEVELOPMENT
Presentation by:
A
Properties of
environment and
Deep and Liquid
Product Suite
Ready Market
Participation
Institutional
Inclusion
Financial
Enabling
Roadmap for Market Development 2
Index Options
Stock
Index
Futures
Ready
Market
Cash
Deliverable
Settled
Futures
Futures
Pros
No requirement to settle principle amount
No requirement to square-off the open position
Provides 6-7 times leverage for retail audience
There shall be no obligation to deliver shares at the end of contract
Cons
Small investors may become the victim of smart institutional hedging
Does not contain risk of delivery pressures at the end of contract as observed in March 2005
Period Contract
90 or 30 days
Opening of Contract
First Trading day of the next week following the close of the contract.
Overlapping Period
None.
Final Settlement
Cash settlement on T+1 basis on the expiration date.
Contract Value
The Contract Value shall be the product of Futures price and the Contract Multiplier
Daily
Prevailing Gain/Loss on
Days Scrip Trade Type Trade Qty Contract Settlement
Trade Rate T+1
Value Price
India, Brazil Athens and Malaysia use underlined assets closing price as Final
Settlement Price
Pakistan Stock Exchange Limited 17
CSF TRANSACTION LIFE CYCLE, FINAL SETTLEMENT PRICE
Daily
Prevailing Gain/Loss on
Days Scrip Trade Type Trade Qty Contract Settlement
Trade Rate T+1
Value Price
Netting Regime?
Netting SHALL NOT be allowed between buy and sell position in same scrip for different clients
Netting SHALL NOT be allowed between buy and sell position in different scrip for same client
Netting SHALL NOT be allowed across different contracts(30, 60, 90) for same client in same scrip
Spread Discounts shall soon be available as the volumes pick-up
Risk Management?
Open positions to attract Ready Market VaR Margins applicable at client level
Margin are payable 100% in securities and will soon be in Cash
Normal haircuts are applied on the collaterals
KSE has resisted and not imposed special margins and profit retention, however, concentration
margins shall be introduced subsequent detailed presentation to member community
Position Limits?
Market wide limit per scrip is 40% of the free float
Member-wide limit per scrip is 10% of the free float
Client-wide limit per scrip is 1% of the free float
The contract multiplier will be adjusted against RIGHT issue in the underlying scrip
When there is 1-for-2 right issue, the contract multiplier will be adjusted to
750 from 500 in the following manner
750 (500 X 3/2)
On the ex-right date
The buyer or seller can square-off their open positions in the multiple of lot-sizes
KSE shall soon be revising lot-size to 1 and CSF contract multiplier
Cash Dividend?
In case where cash dividend is declared in a scrip, no adjustment would be made by the exchange
The market to re-adjust in consideration of cash dividend.
Existing Contract
Adjustment of Bonus
Issue? Contract Vol Futures Price Contract Value
Open positions to attract 500.00 540.00 270,000.00
Ready Market VaR Margins
applicable at client level
When there is a 1-for-2 bonus Conpany Announces 1.222 Shares for each share
shares issue i.e. for every 2
existing shares,
the holder gets one additional Revised Contract
shares
The Exchange: shall adjust
the prices in the following Contract Vol Bonus Multiple Bonus Shares
manner 500.00 1,222.00 611.00
Original Volume 500.00
Revised Contract Volume =======> 1,111.00
Contract Start Date first day following the last Friday of Each Month
Daily PLS Settlement Volume weighted average value of last half hour of trading in relevant stock
index futures contract multiplied by contract multiplier.
Final Settlement Same as of CSF, except that SIFC uses underlined index values
*3750exposure margin, and RS 5 per index point movement is the gain or loss
Cash Management
DVP DVP
Bank/ T+2 Settlement 30 days contract
Personal Traded at PSX Traded at PSX
Borrowing Settled by NCC Settled at NCC
(K+4) Features
Bull Run
Ready Future Arbitrage Go long in DFM
pay at the end of DFM
Borrow Cash
Past Experiences
March 2005 Crises was triggered due to delivery pressures in the 4th week of March 2005
SECP advised to introduce non-deliverable-CSF to avert delivery requirement on the end of long position holders.
Cash Management
Past Experiences
Carrying one transaction forward involves 3 additional transaction.
Cash Management
DVP CSF
Use of T+2 Settlement 90 days contract
Futures and Traded at PSX Traded at PSX
Financing Settled by NCC Settled at NCC
tool. Lender
should go
Features
short in
CSF and go Hedging
long in Buy in Ready Market Supports Bull Run
ready to Go short in CSF Support Bearish Trend
earn return No need to square the trade in CSF
at KIBOR+n Lend in Ready and earn money
Loss is hedged against down-trend
Past Experiences
Investors tend to use CSF. The fear factor prevalent at Brokers is impeding the volumes in this product.
Presence of Circuit Breakers is yet another impediment in the growth of this product.
Institutions are allowed to do financing in CFS. However, they Mutual Fund cannot trade on CSF.
Trading Strategy
Past Experiences
International consultants have regarded this as an excellent arbitrage and hedging tool.
Yet the fear factor and Presence of Circuit Breakers remains a key impediment in the growth of this product.
Institutions are allowed to do financing in CFS. However, Mutual Fund cannot trade on CSF.