November 8, 2021 (MLN): Pakistan Stock Exchange (PSX) in a notice addressed to all TRE Certificate Holders, has proposed to reduce minimum brokerage commission for fixed Income Exchange Traded Funds (ETF) to 1 paisa per share or 0.01% of the transaction value.
The amendments proposed in Chapter 4 of PSX Regulations, is to promote acceptability and marketability of fixed income ETFs as a viable investment option for investors.
According to the notice, “PSX, in exercise of powers conferred upon it u/s 7 of the Securities Act 2015, is proposing to carry out amendments to PSX Regulations to prescribe reduced minimum brokerage commission for ETF”.
As per Annexure-Ill of Chapter 4 of PSX Regulations, the standard rate of brokerage commission is higher of 3 paisa per share' or '0.15% of the transaction value on every buy and sell transaction which is not squared during the same trading day or only on one side which is squared-off during the same trading day. The same rate of brokerage commission is also applicable on ETF.
The notice noted that some inherent features of fixed income ETF which distinguish it from equity class ETF, such as:
(a) The upside potential of equity class ETF is significantly higher than that of fixed income ETF as a stock may hit the upper cap of circuit breaker in a trading day but T-Bills/ PIBs are least likely to show much volatility, particularly when the interest rates are at low level.
(b) The current impact of brokerage commission of 0.3% (on both buy & sell sides combined) on a non-Intraday trade will bound the investors to hold the units of fixed income ETF for atleast 2 weeks (assuming an annual return of 8%) just to reach the break-even.
Moreover, it has also been observed in other jurisdictions that the exchanges have either temporarily waived off trading fees for fixed income ETFs or prescribed lower trading fees for fixed income ETF compared to equity class ETF.
In view of the above, it is considered important to have a different structure of minimum brokerage commission for both classes of ETFs, PSX notice said.
In this regard PSX has invited all interested parties to provide written comments on the proposed regulatory amendments to Annexure-III of Chapter 4 of PSX Regulations latest by November 12, 2021.
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