SECP Links Short Selling With Uptick Rule in Futures Market

In the wake of COVID-19 and its unprecedented effect on global stock markets, the Securities and Exchange Commission of Pakistan (SECP), in consultation with market stakeholders and market infrastructure institutions, has decided that for the April 2020 contract, a short sale in 36 specific shares of the futures market shall be subject to an uptick rule.

This will ensure the provision of a required prior notice period to the market and retain liquidity in the rollover week. The uptick rule means that the shares of that relevant scrip have to be sold at a price higher than the last trade not lower.

Further, to support the mutual fund industry, the maximum period of borrowing by mutual funds for redemption purposes will be extended from existing 90 days to 360 days.

Moreover, the commission has allowed relaxing deposit requirements against the base minimum capital of TREC holders.

The requirement to perform biometric verification at the time of opening of the account is eased and the biometric verification may be performed within 90 days. However, other KYC requirements as per the CKO and NCCPL Regulations including VERISYS shall remain applicable.

Earlier, a number of facilitative measures were undertaken by the SECP which include:

  1. Collection of market-wide concentration margins at a specified threshold to rationalize mode of implementation.
  2. Near cash instruments collected as acceptable market collateral against exposure by NCCPL.
  3. Inclusion of close-out mechanism in the DFC market and release of 50% MtM profit in the deliverable futures market on a T+1 basis.
  4. Amendments to the Listed Companies (Buy-Back of Shares) Regulations 2019 to remove free-float conditions for shares to be held as the treasury.

Over the last couple of weeks, the SECP has been coordinating with the Stock Exchange, Clearing and Depository Companies and other market participants and has held multiple sessions.

It is comforting that the various risk management measures and market halts instilled in the stock market are working effectively, margins were collected in a timely manner and no settlement issues were witnessed.