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Rules for Continuous Funding System (CFS) implementation notified

KARACHI (December 20 2005): The Karachi Stock Exchange (KSE) has released rules and regulation pertaining to ‘continuous funding system’ (CFS) started from Monday on real time basis while the limit has been reduced by nearly Rs 500 million, following consent from the management of the Exchange.

THE NOTIFICATION SAID:

1.ENTERING PREMIUM PERCENTAGES INSTEAD OF PREMIUM RATES: In order to limit the CFS premium rate up to 18 percent, the TWS operators would enter the percentage at the time of seeking funding by the Financee, rather than placing the premium rate in the absolute form.

2. CAPPING OF CFS TO RS 25 BILLION:

a. The system shall use previous day’s closing price of the underlined CFS scrip for determining the utilised amount under CFS in the running market on estimate basis.

b. Governing Board of Directors authorised the Management to reduce the CFS capping limits from Rs 25 billion to Rs 24.50 billion to offset the variations arising out by the usage of previous day’s closing prices while keeping the CFS capping limits.

3. EXTENDED TIME FOR CFS RELEASE AND FUNDING: CFS Market simultaneous execution with the Regular Market shall be available from December 19, 2005.

TThe IT Division would start the deployment of Trader Work Stations (TWS) version 4.3.1 from Friday, December 16, 2005, after the closing session of CFS Market.

4. CFS FACILITY TO BE PROVIDED AGAINST GROSS PURCHASES IN THE READY MARKET: In order to restrict a brokerage house to have position in CFS market beyond his/her gross purchases in the ready market, the system shall keep track of all buy and CFS release of the brokerage house on real-time basis.

5. SEPARATE T+3 AND CFS MARKETS FOR THE PURPOSE OF RISK MANAGEMENT/EXPOSURE:

a. Netting shall not be allowed for trades carried out in CFS market as CFS Financier with T+3 Market trades in the same scrip. The system will calculate exposure separately for trades carried out in the CFS Market in a scrip as Financier by netting all unsettled CFS trades of financier (first ticket buy and second ticket sell) including open/unreleased CFS trades (second ticket sell), however, without allowing netting with T4-3 market trades and trades carried out in CFS market as Financee in the same Scrip.

b. Netting shall be allowed for trades carried out in CFS Market as CFS Financier with T+3 Market trades in the same scrip. The system will calculate exposure separately for trades carried out in CFS market in a scrip as Financier by netting all unsettled CFS trades of Financier (first ticket sell and second ticket buy) including open/unreleased CFS trades (second ticket buy) with allowing netting with T+3 market trades.

c. Exposures in a scrip calculated as CFS Financier as per (a) above and as CFS Financee/T+3 trades as per (b) above will be added together to arrive at the Exposure of the member in a CFS eligible scrip.

d. There will be no change in the existing mechanism for calculation, netting and collection of Mark-to-Market losses and the same will remain intact.

6. GRADUATING RATES OF MARGIN CFS MARKET: The Exposure of CFS Financier (5a above) in CFS Market will further be subject to CFS Market Margin slab margin ranging from 2 to 5 percent. The Margin shall be increased in proportion to the increase in KSE 100 Index.

======================================================================= Exposure limit of CFS financier                         Deposit payable Up to Rs 100 million                   2 percent of the exposure amount Over Rs 100 and up to Rs 200 million     Rs 2 million + 3percent of the                                         amount exceeding Rs 100 million Over 200 million and up to                      Rs 5 million +4 percent Rs 300 million                                            of the amount                                                Exceeding Rs 200 million Over Rs 300 million               Rs 9 million + 5percent of the amount                                                Exceeding Rs 300 million =======================================================================

Deposit against CFS market margin slab will be accepted in CFS eligible securities only.

7. MAINTENANCE OF LEVERAGE POSITIONS: The leverage position of CFS Financee (borrower) in respect of CFS and Futures shall not exceed fifteen times of his/her net capital balance. For this purpose, the system shall not allow netting in the trades carried out by a broker simultaneously as CFS Financier and CFS financee in the same scrip.

In terms of the decisions of the Board of Directors, a detailed presentation will be given to all market participants for revised RMS features on January 6, 2006, at 4:00 pm at KSE auditorium and shall be implemented from January 16, 2006.

It may be noted that the features except mentioned in serial numbers 5 and 6 shall come into force from December 19, 2005.

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