Stock brokers demand ‘leverage’ product

KARACHI: In an informal meeting of members of the Karachi Stock Exchange on Monday afternoon, a strong 60 broker-member fraternity who participated out of the 200 members on roll, demanded a leverage product. ‘Leverage product’ in simple language would mean a product that could allow investors to purchase shares on borrowed money.

Sitting on the dais were half a dozen big brokers. The noisy proceedings started at the Trading hall but the venue was soon shifted to the KSE auditorium, away from the media glare.

A senior member present at the meeting said that the brokers stood united on the one basic point, that the market was in dire need of a leverage product—the void had been created following the scrapping of the ‘badla’ or CFS earlier in the year, without first replacing it with another acceptable-workable product.

‘Basically, the meeting deliberated on three points’, said a member present at the meeting. The first, of course, was the leverage product. It was resolved that a Committee of members be formed within 15 days to work with the trading affairs Committee of the KSE and discuss and deliberate on the leverage product; send the recommendations to the Consultative group formed by the SECP for onward submission to the Securities and Exchange Commission of Pakistan.

Interestingly, both groups of brokers known to be in favour of the earlier dumped ‘badla’ and against it, participated in the meeting. ‘While there was consensus on the need for a leverage product, there were heated arguments on its features and modalities’, said a meeting participant. Vocal members expressed diverse views on whether to adopt an ‘internationally accepted model’ or devise a home-grown product.

The worry over the absence of a leverage product dawned on the brokers, following the fall in daily trading volumes, which could scarcely climb up to 100 million shares, from 250 million shares earlier this year. ‘Declining volume means a hit on brokers’ commission’, said a floor trader, whose own income was also drying up with drop in business.

Next, the meeting considered establishing of an association of stock brokers. For that purpose, it was proposed that a Committee be formed (the same as would work on leverage) which should look into the legal aspects and conduct the work of registration and preparation of memorandum and articles of association.

The meeting was also said to have discussed less fiery issues of reaching out to the Government on confirming the status of tax on stocks in the upcoming June 13 federal budget, given the conflicting reports emanating from various sources.

FOREIGN INVESTORS: The foreign investors kept up the recent momentum of buying, with net purchase of shares at the KSE of the value of US$5 million on Monday. Overseas investors made portfolio buy of a huge $13.12 million and sold stocks worth $8.10 million. Analysts counted several reasons for the rejuvenation of foreign investors’ interest.

Attractive fundamentals of the Pakistani equities were believed to be on top.

Moreover, a fund manager said that with the rise in price of crude, foreigners were investing in good measure in the E&P stocks. He candidly pointed out that the foreign investors were not returning only to the KSE, but were entering most other markets in the region that offered good value for money.