KARACHI (November 07 2002) : Karachi Stock Exchange (KSE) has introduced new procedure of COT (Badla) financing for 10 trading days effective from November 11, 2002, to avert any crisis-like situation.
The members been informed that in compliance with the decision of the board of directors, the prevailing COT procedures will be changed as under:-
From November 11, 2002, all carryover transactions will be for a period of 10 trading days. During the period, funds could be released on any day before completion of 10 days' period, whereas financier will be able to release COT after completion of 10 days.
The COT premium, to be entered into the system, will be of one day's rate. However, the premium will be calculated and changed the basis of number of days for which transaction remained valid.
In order to implement the above procedure, on November 11, 2002. COT release session will not be made available to the members of the Exchange, which will itself release all COTs on that day. All COTs from November 11, 2002 will be executed under the new procedure for 10 trading days.
Moin M Fudda, managing director of KSE said that currently COT financing is done on daily basis and therefore, with the introduction of the new procedure, the potential risk of sudden and massive withdrawal of financing from the market will be relatively mitigated.
In the past the market punters and investors have seen difficult periods because of sudden withdrawal of funds from the COT market.
Analysts said that the after September 11, 2001 incidents, the market crashed drastically and lost 179 points and the COT market faced difficulty. To settle the overhang, the market was closed down for a week as the COT faced difficulties in arranging finances. Banks and financial institutions bought shares to defuse the crisis.
In May 2002 after increase in tension with India, the market nose-dived and similar situation emerged and the players faced lack of liquidity.
But the step taken by the management would help boost sentiment and will give much-needed confidence to general investors that now the financier cannot pull out its fund for at least 10 days. However, the borrower could pay before the time limit.