ISLAMABAD (February 11 2003) : The Securities and Exchange Commission of Pakistan has identified a roadmap to introduce margin financing by June this year, which will replace the badla financing, which caused the stock market index fall in the last three weeks.
An official of SECP said that margin financing would be introduced gradually, as sudden elimination of badla might create liquidity crisis. Karachi stock market index dropped almost 16 percent after reaching a record high of 2955.52 points on January 16 on high rates of badla financing.
The official said that before margin financing is introduced the SECP would have to develop a financial mechanism to prepare the institutions for the more acceptable method of purchasing shares on credit on developed stock markets.
He said that financial institutions, like commercial and investment banks, leasing companies and mutual funds, would have to be convinced and provided a mechanism for margin financing.
The official said that even badla financing was being regulated by the SECP and that was why that despite fall in the Karachi Stock Exchange index, there was no risk or settlement issue.
He said the Commission could not interfere when the index was falling because the role of the Commission was to regulate and see that everything was being done according to the regulations and no mismanagement was taking place.
Analysts believe that big brokerage houses went into badla financing at higher rates after which the weak holders panicked and started selling shares.
To prevent brokerage houses from entering badla financing, the SECP would introduce margin financing through institutions, the official said.