Karachi: Regulatory approvals and operational procedures, including the appointment of market-makers, will be in place by the end of January to enable the commencement of trading in government securities through the Karachi Stock Exchange (KSE).
KSE Managing Director Nadeem Naqvi met Finance Minister Ishaq Dar last week, to discuss the implementation of secondary market trading of government securities on the stock exchange through the KSE’s Bonds Automated Trading System (BATS) platform.
“The government’s objective is to enable retail investors to invest in government securities using the settlement process of the Central Depository Company (CDC),” Naqvi said, adding that the development will broaden the investor base of government securities.
Currently, the government issues PIBs and holds auctions for market treasury bills in which only selected banks and financial institutions take part as ‘authorised primary dealers’. For the fiscal year 2013-14, the State Bank of Pakistan (SBP) has appointed 11 banks/financial institutions as primary dealers of government securities.
Under the current mechanism, secondary market transactions take place among these institutions through the Bloomberg Bulletin Board facility on a counterparty risk basis, also known as over-the-counter (OTC) transactions.
According to KASB Securities research analyst Farrukh Khan, a change in the intermediation process offers a significant scope for government securities, as their ownership is currently concentrated in the banking sector.
“Scheduled banks currently own 84% of treasury bills, 53% of PIBs and 91% of Ijara Sukkuks. The rest of the ownership is divided between corporate entities, insurance companies and mutual funds,” Khan said.
“Making retail investment in government securities easy will only deprive the stock market of liquidity. Only a small number of people invest in the stock market, they are now being pushed by the government to invest in government papers,” said a stock market analyst while requesting anonymity.