KARACHI: The Pakistan Stock Exchange (PSX) is determined to promote retailing in the debt securities market through its platform in 2022, said Farrukh H. Khan, CEO of PSX.
Speaking to Dawn in a recent interview, the chairman of the country’s only stock exchange said PSX has recruited 12 banks as market makers to ensure retail investors have easy access to the debt market.
Equity investors can theoretically buy and sell debt securities, ranging from corporate bonds and sukukes to government-issued treasury bills, on the PSX platform. However, the daily volume of debt securities traded on the PSX is negligible for various reasons.
“We have all the bricks in place in 2021. We are integrating our system with those on the market.
manufacturers. Next year, we will generate activity in the primary and secondary debt markets, ”said Mr. Khan.
Farrukh says lack of liquidity has kept retail investors from gaining market exposure
One of the main reasons for the low trading volumes is the insufficient understanding of debt securities among employees dealing with brokerage house clients, he said. But more importantly, the lack of liquidity due to the lack of matching has kept retail investors from gaining exposure to the debt market, he said.
“Market makers will soon be implementing bid and bid rates for all kinds of debt securities, ensuring that the counterparty is always available if a retail investor wants to trade,” he said.
In addition, Mr Khan said 2022 will see the launch of at least one fixed income exchange-traded fund (ETF) – an asset class made up of a basket of different securities that retail investors can buy and sell. as a single action. This will allow equity investors to divert their investments to fixed income securities like bonds and sukuk as soon as they decide to reduce their exposure to the equity market for whatever reason, he added.
According to data compiled by Arif Habib Ltd, foreign ownership of shares as a percentage of free float market capitalization is hovering at its lowest level in 10 years, at around $ 2 billion, thanks to relentless sales by foreign investors.
“Instead of growing, the size of our stock market has grown from $ 100 billion to $ 50 billion in recent years,” he said, noting that devaluation has played a major role in it. In addition to stock market valuations, foreign investors also look at the liquidity and size of the market before making decisions, he added.
“We often forget that the PSX has mostly old economy stocks. These stocks trade at a lower price [price-to-earnings] multiples that new economy stocks all over the world … our valuations are certainly low, but they’re not as low as a lot of people like to think, ”he said.
The PSX launched the Growth Enterprise Market (GEM) board in 2021, which is a separate window for new and growing companies with higher investment and liquidity risks than mature companies listed on the board. main administration of the stock exchange.
However, both GEM-listed companies have received low volumes since their public offerings towards the end of 2021. Brokers attributed the moderate activity of these stocks to the regulator’s requirement that only institutions or individual investors accredited with a net asset of at least Rs5m can trade on the GEM meter.
“Volumes will increase once there are at least five to 10 companies on the GEM meter,” Khan said, adding that the net asset requirement of at least Rs5million is both “low” and “reasonable”.
Brokers demanded that there be “no disparity” between ready and GEM meters, as screening and documentation procedures for accredited investors increase the cost of brokers’ operations.
“Developing an understanding of a new product always takes time. Brokers should make an effort to understand this better, ”he said, adding that brokers are required to check only one box online after their clients have self-certified as Qualified Investors.
Regarding the botched deployment of a new trading system in October, Mr Khan said he had issues in his front-end that were “completely unexpected” as they never came in the form of simulations.
Purchased on the Shenzhen Chinese Stock Exchange at a price of RsRs461.2m, its implementation led to low volumes in subsequent trading sessions. Users have complained about the lack of basic functionality and frequent issues resulting in delays in executing transactions. Following protests from a majority of brokers, PSX rolled back the old system until the bugs in the new one were fixed.
“We are committed to the new system. We will reintroduce it in two or three months, ”he said.
Posted in Dawn, December 26, 2021