ISLAMABAD (December 07 2005): The Securities and Exchange Commission of Pakistan (SECP) will soon announce procedure for releasing funds on real time basis as well as disclose new mechanism for checking downward capping of shares prices.
Officials in SECP told Business Recorder on Tuesday that the Commission was considering these new mechanisms, which would be notified in one or two days. “It would be more appropriate to say that the procedures are under review, which would be soon issued for the stock exchanges,” they added.
According to the new system, trading in scrips registering 5 percent decline would be halted in coming sessions. This would be done to control the sudden plunge in share prices, and trading would be halted in that particular scrip for approximately 30 minutes.
If trading reopens after 30 minutes and the scrip again shows 5 percent decline, the trading in that scrip will be stopped for the rest of the day.
On the second day, trading will halt if the scrip falls by 10 percent in value for a cool off period and in case the scrip drops by another 10 percent, the scrip will then be traded on SPOT rate, allowing the investor to sell-off his holdings.
Internationally, different procedures are followed to stop downward trends in scrips. The old circuit-breaker system was also a mechanism to bring stability in the falling market conditions. However, as was witnessed during stock market crises, the old circuit-breaker system had trapped many investors, making it impossible for them to sell off their holdings in everyday falling scrips.
CFS: Ever since badla was replaced by Continuous Financing System, the new mechanism has continued to work on the pattern of badla financing, whereby CFS trading would start after closure of the regulator market. Following introduction of the new regulations, the CFS trading mechanism would continue side by side with regular market.
It would provide an opportunity to the leveraged buyers to make use of availability of funds for their stock purchases.
Earlier, Karachi Stock Exchange (KSE) had proposed to the stock market regulator to extend the 'Continuos Financing System' for one hour after closure of stock market trading.
However, SECP is of the view that trading under CFS system would stop half an hour before closing of trading hours.