PSX plans to launch cash-settled futures by March

December 13, 2024 (MLN): Pakistan Stock Exchange Ltd. is looking to give traders the option of settling futures deals in cash with testing planned by March, according to the newly appointed chief executive of the nation’s bourse.

“The first product on our table is cash-settled futures and then options,” Farrukh H Sabzwari, who took charge last month, said in an interview at his office in Karachi on Wednesday.

The move is expected to boost derivatives trading in the world’s best-performing equity market this year, he said.

PSX currently offers deliverable futures trading where open positions on expiry day have to be settled either by the seller delivering the shares or the buyer taking delivery of shares, as Bloomberg reported. 

Traders, however, prefer futures to be cash-settled as the capital requirement is lower.

The move is expected to improve liquidity, which otherwise tends to dry up toward contract expiry because of delivery-related trades.

Pakistan’s stocks have been on a tear, with the benchmark KSE-100 Index gaining 170% over the last 18 months as the nation averted a default and the economy stabilized after multiple bailouts from the International Monetary Fund.

The South Asian nation has seen its currency stabilize, dollar reserves rise and inflation drop to the slowest pace in almost six years.

An easing monetary policy is also boosting market sentiment. The central bank is set to cut interest rates for a fifth straight meeting in its decision due Dec. 16, according to a Bloomberg survey.

The economic stability and the introduction of new derivatives products could further boost sentiment, said Sabzwari, formerly the head of Securities and Exchange Commission of Pakistan.

Sabzwari sees the stock rally as the perfect time to increase retail participation in the market from less than 1% of the population at present.

He also expects the number of initial public offerings in the country to exceed last fiscal year’s tally of 12, drawing more first-time investors.

“It is no longer only about getting IPOs only, but about consciously looking for private sector companies of some size,” he said, highlighting that new offerings in the last five years added less than 6% to aggregate market value.

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