KARACHI: The Pakistan Stock Exchange (PSX) is determined to promote retail trading in the debt securities market through its platform in 2022, said PSX CEO Farrukh H. Khan.
Talk to Dawn in a recent interview, the head of the country’s only stock exchange said that the PSX has recruited 12 banks as market makers to ensure retail investors have easy access to the debt securities market.
Equity investors can theoretically buy and sell debt securities, ranging from private corporate bonds and sukuk to government-issued treasury bills, on the PSX platform. However, the daily volume of debt securities traded on the PSX is negligible for a variety of reasons.
“We put 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 securities markets,” Mr. Khan said.
Farrukh says lack of liquidity has prevented retail investors from gaining market exposure
Poor understanding of debt securities among brokerage firm employees who deal with clients is a major reason for low trading volumes, he said. But more importantly, the lack of liquidity due to the lack of a counterparty has prevented retail investors from gaining exposure to the debt market, he said.
“Market makers will soon put in place bid and bid rates for all kinds of debt securities, ensuring that counterparty is always available should a retail investor wish 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 stock market investors to divert their investments to fixed income securities like bonds and sukuk as soon as they decide to reduce their exposure to the stock market for whatever reason, he added.
According to data compiled by Arif Habib Ltd, foreign equity ownership as a percentage of free-float market capitalization is at a 10-year low of around $2 billion, thanks to relentless selling by foreign investors.
“Instead of growing, the size of our stock market has gone from $100 billion to $50 billion in recent years,” he said, noting that devaluation had played a major role there. In addition to stock market valuations, overseas investors also look at market liquidity and size before making decisions, he added.
“We often forget that the PSX has mostly old economy stocks. These stocks are trading at lower prices [price-to-earnings] multiples than new economy stocks around the world…our valuations are certainly low but they’re not as low as a lot of people like to believe,” he said.
The PSX launched the Growth Enterprise Market (GEM) Board of Directors in 2021, which is a separate window reserved for new growth companies with higher investment and liquidity risks than mature companies listed on the main table of the stock market.
However, both GEM-listed companies have received low volumes since their public offerings in late 2021. Brokers attributed the subdued activity in these stocks to the regulator’s requirement that only accredited institutions or individual investors with a net asset of at least 5 million rupees can trade on the GEM counter.
“Volumes will increase once there are at least five to 10 companies on the GEM counter,” Mr Khan said, adding that the net asset status of at least Rs 5 million is at a time” low” and “reasonable”.
Brokers have demanded that there be “no disparity” between lending and GEM counters, as screening and documentation procedures for accredited investors increase the cost of doing business for brokers.
“Developing understanding of a new product always takes time. Brokers should make an effort to understand it better,” he said, adding that brokers are only required to tick one box online after their clients self-certify as accredited investors.
Regarding the botched rollout of a new trading system in October, Mr Khan said he had issues in his front-end which were “completely unexpected” as they never showed up in simulations.
Purchased from China’s Shenzhen Stock Exchange at a price of RsRs 461.2 million, its implementation resulted in low volumes in subsequent trading sessions. Users have complained about the lack of basic functionality and frequent issues leading to transaction execution delays. Following protests from a majority of brokers, the 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 to three months,” he said.
Posted in Dawn, December 26, 2021