PSX proposes to apply prevailing percentage-based Circuit Breakers on ETF price

October 10, 2019 (MLN): Pakistan Stock Exchange (PSX) in a notice addressed to all TRE Certificate Holders, has informed that the PSX, in exercise of powers conferred upon it u/s 7 of the Securities Act 2015, has proposed to carry out amendments to PSX regulation and sought public comments on it.

In order to provide relaxation on regulatory requirements for Exchange Traded Funds (ETF), PSX has proposed two amendments, first is to give relaxation on advance notice for a change in LOT size of ETF underlying constituents and second is to apply Circuit Breakers (CB) for ETF.

Since CB is applied on security in case its price moves by higher of PKR 1.0 or prevailing fixed percentage (or higher as may be applicable) from its last day closing price and ETFs are planned to be launched with a par value of PKR 10. Therefore, the applicable CB will in effect be PKR1.0 i.e. 10% of the ETF price, whereas, the ETF underlying constituents will have prevailing percentage-based CB. In such a situation, it seems likely that the ETF price may deviate significantly from its NAV.

To address this inconsistency, PSX has proposed to simply apply prevailing percentage-based CB on ETF price instead of higher of such percentage or PKR1.0.

Besides, PSX also proposed to allow Banks, Development Financial Institutions (DFIs) and Mutual Funds besides Security Brokers, to act as Market Makers at PSX. In addition to this, PSX also proposed to amend the existing definition of Authorized Participant (AP) to include these institutions to also act as AP for ETF besides Security Brokers.

Moreover, to ensure speedy and efficient disposal of regulatory and compliance matters, several operational powers are proposed to be delegated from the PSX Board and Regulatory Affairs Committee (RAC) to Chief Regulatory Officer (CRO) of PSX.

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