KARACHI (February 27 2005): In order to ensure smooth transition from COT to Margin Financing, the State Bank of Pakistan (SBP) has decided to cap COT exposure of banks/DFIs. The central bank has taken this decision in connection with SECP's time-based action plan for phasing out of Carryover Transaction (COT) by June, 2005. In this connection, the SBP issued a circular on Saturday which said that in order to safeguard the interests of all stakeholders and to ensure smooth transition from COT to Margin Financing, it has been decided that banks/DFIs shall cap their COT exposure, in each share, at the existing level as on February 25, 2005.
This means that the banks/DFIs will ensure that from now onwards their COT exposure, in any share, does not exceed the COT exposure in that share, as of February 25, 2005.
According to the circular, banks/DFIs having substantial exposures in COT financing are encouraged to extend margin financing to their clients.
This will help them in remunerative deployment of their funds released gradually from COT financing because of gradual withdrawal of shares in line with the action plan announced by SECP and will also facilitate the smooth transition from COT to Margin Financing.