CONTINUOUS FUNDING SYSTEM REGULATIONS, 2005
PREAMBLE:
WHEREAS in order to improve the liquidity in the capital market, it is expedient to
introduce Continuous Funding in place of Carry over or badla financing;
AND WHEREAS in order to achieve the aforesaid objective, it is desirable that
necessary Regulations be framed to regulate the Continuous Funding System;
NOW THEREFORE, in exercise of its powers under Section 34(1) of the Securities &
Exchange Ordinance, 1969, the Karachi Stock Exchange (Guarantee) Limited with the
prior approval of the Securities & Exchange Commission of Pakistan, hereby makes the
following Regulations;
1.
2.
SHORT TITLE AND COMMENCEMENT
(1)
These Regulations shall be called “The Continuous Funding System
Regulations, 2005”.
(2)
These Regulations shall come into force and effect from August 22, 2005.
DEFINITIONS:
In these Regulations, unless the subject or the context otherwise requires or
permits:
3.
(a)
“Approved Securities” means the securities approved by the Board with the
prior approval of the Commission for the purpose of these Regulations.
(b)
“Board” means Board of Directors of the Exchange.
(c)
“Broker” means any member of the Exchange engaged in the business of
executing transactions in securities for the account of others and is
registered with the Commission for this purpose.
(d)
"CFS" means Continuous Funding System.
(e)
“Commission” means the Securities & Exchange Commission of Pakistan.
(f)
“Exchange” means the Karachi Stock Exchange (Guarantee) Limited.
(g)
“Margin” means the amount of cash or approved securities deposited by the
financee or by the financier as security for the purpose of Continuous
Funding System as provided under these Regulations.
(h)
“Net Capital” means Net Capital as defined under clause (d) of Rule 2 of
the Securities & Exchange Rules, 1971.
GENERAL CONDITIONS:
(1)
The maximum amount for the purpose of CFS is capped at Rs. 25 Billion.
(2)
CFS facility will be allowed in 14 top volume approved securities to be
selected in accordance with the criteria laid down by the Board. The list of
these approved securities shall be subject to review by the Exchange after
every six months.
4.
5.
6.
(3)
The CFS Market shall be available for the entire trading period. The CFS
Market shall run parallel to the Ready Market and transactions thereunder
shall take place through the Karachi Automated Trading System (KATS).
(4)
The CFS facility shall be available for a period of 30 days at the option of
the financee.
(5)
CFS facility shall only be provided against purchases in Ready Market.
RISK MANAGEMENT:
(1)
For the purpose of ensuring risk management, the CFS market shall be
separate from the T+3 market and the purchases of a security by financier
under CFS shall not be netted against his sale in the same security in T+3
market.
(2)
The rates of margin as shall be determined by the Board for the purpose of
CFS market shall be graduating automatically. The Margin shall be
increased in proportion to the increase in KSE-100 Index.
(3)
The financier shall keep the CFS financed securities in a separate account
maintained with the Central Depository Company of Pakistan Limited in
order to ensure that these securities are not used for loaning against blank
and short selling.
(4)
Every Broker shall maintain his leverage position in respect of CFS and
other derivatives not exceeding 15 times of his Net Capital Balance.
SETTLEMENT OF CLAIMS IN CASE OF DEFAULT OF A BROKER:
(1)
The Members’ Default and Procedure for Recovery of Losses Regulations
shall also be applicable to defaults and recoveries under these Regulations.
However, in case of default of a Broker, all his assets available in the
control of the Exchange, except the Margin, will be first utilized for
settlement of T+3 trades and then for CFS transactions.
(2)
No claim under CFS shall be entertained outside KATS.
AMENDMENT IN REGULATIONS
The Board may amend these Regulations with the prior approval of the
Commission after giving reasonable notice to the market participants.
7.
CFS PHASE OUT
The phase out of CFS shall be reviewed by February 28, 2006.
8.
REPEAL
The Carry Over Transactions Regulations, 1993 are hereby repealed.