SLB to be available on bourses from March 21

Securities Lending and Borrowing (SLB), the new and first of its kind leverage product in Pakistan, would be implemented at all the three stock exchanges from March 21, 2011. The implantation date of the two other leverage products including Margin Trading System (MTS) and Margin Financing System (MFS) has already been announced as financing under both the products would be available at all three stock exchanges from March 14, 2011.
The launch of the said three leverage products was announced by Finance Minister Dr Abdul Hafeez Shaikh at a ceremony held on March 6. "The SLB market would be provided by National Clearing Company of Pakistan Limited (NCCPL) on un-disclosed basis through an automated portal to SLB participants," Muhammad Lukman, CEO of NCCPL said while briefing journalists here on Wednesday. He said SLB provides a mechanism for temporary exchange of securities with an obligation to redeliver the same securities in the same number at an agreed premium on a future date.
The SLB is designed to earn income/return on idle securities and provides an effective solution to manage delivery defaults. The SLB participants (lenders and borrowers) can be brokers, banking and financial institutions, investment finance companies and other persons approved by NCCPL; he said, adding that all margins and marked-to-market losses are payable in cash only.
He was optimistic that implementation of the three new leverage products will add to the vibrancy of the capital market and enhance its depth. He pointed out that the Securities and Exchange Commission of Pakistan (SECP) has registered NCCPL as authorised intermediary for all the three leverage markets ie MTS, MFS and SLB. The NCCPL, acting as authorised intermediary will provide an automated portal to leverage market participants to access leverage markets through interface available to them electronically.
On a query about major difference between MTS and MFS, he said that in the MTS financing would be made available on undisclosed basis while the MFS will be executed on disclosed basis and carry counter-party risk. About the salient features of MTS, he said that financing in MTS would be allowed only in 27 MTS eligible securities. Financing in MTS would be provided for 60 days; however one fourth of financing will be re-paid on each fifteenth day. The maximum mark-up rate is capped at KIBOR+8 percent.
He said risk management regime has been further improved from previous leverage products, which existed in the capital market, and all margins are in cash only. He pointed out that NCCPL has also levied penalties and restrictions for finances on non-fulfilment of money obligation of their clients which range from two percent to four percent and restriction of three months to permanent restriction to leverage markets.
About MFS, he said the NCCPL will provide MFS portal to record MF transactions based on bilateral agreements between Margin Financiers and Margin Financees against net ready market purchases on their clients and proprietary positions. The MFS would be provided initially in 65 eligible securities. "The margin financiers and margin financees will pre-define all terms and conditions pertaining to MF transactions," he added.