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KSE softens rules for futures market

KARACHI (April 07 2005): The Karachi Stock Exchange (KSE) while softening rules related to futures market has said, “No netting, whatsoever, shall be allowed, from retained profits, till final settlement of the contract, which would be implemented from Friday weekly clearing (April 8)”.

The board of directors of the exchange in its emergent meeting held on Wednesday reviewed its earlier decision taken in the meeting held on March 17, regarding profit distribution in futures market and decided to delete the phrase “No netting, whatsoever, shall be allowed, from retained profits, till final settlement of the contract.”

Furthermore, the board considered the profit/loss calculation mechanism in the futures contract and approved the following:

— Marked-to-market loss should be refunded to the members in case the marked-to-market loss is converted into distributable profit.

— The system would calculate scrip-wise profits and losses of each trade.

— In case of price fluctuation in a scrip beyond 20 percent of the opening rate of the contract, the system would calculate profits within 20 percent (P1), profits above 20 percent (P2) and losses (L) separately of each trade in that scrip.

The system would net-off profit and losses in a scrip in the following manner:

(1) The system would first adjust losses (L) with profits within 20 percent (P1).

(a) If the result is profit (P1), it would be receivable (by the member) and profit above 20 percent (P2), would be retained.

(b) If the result is loss, it would be then adjusted with the profits above 20 percent (P2), if the result is still loss, it would be payable (by the member), if the result is profit (profit beyond 20 percent fluctuation from opening rate of the contract), it would be retained.

In cases where price is within 20 percent benchmark, the system would adjust losses with the profits in the scrip. If the result is loss, it would be payable. If the result is profit, it would be receivable.

The system would repeat the same process for all scrips.

The notice of the stock exchange to all members also said that the system would net-off all payables and on receivables, excluding retained profits, ie, profits beyond 20 percent price fluctuation from the opening rate of the contract.

If the result is net loss, the system would generate demand after allowing basic exemption (Rs 100,000).

If the result is net profit, any excess loss paid by the member would be refunded on demand.

On Fridays (weekly clearing) the system would generate demand without allowing basic exemption, in case if result is net loss. Otherwise profits would be distributed in case if the result is net profit. Moreover, any excess loss paid by the members during the week would be adjusted/refunded in this weekly clearing process.

The board of directors would again meet on Thursday and would discuss one-point agenda of stock exchanges demutualisation.

It has been learnt that the board of directors would likely to suggest extension in demutualisation of the stock exchanges, which is likely to be finalised by June this year.

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