A derivative is a financial security with a price that is dependent upon or derived from one or more underlying assets. The most common underlying assets include stocks, bonds, commodities, currencies etc. Derivatives can be used for the purposes of speculation, hedging, or for accessing hard-to-trade assets or markets. The types of Derivatives traded on PSX are:
DFCs are standardized futures contracts to buy or sell eligible underlying securities with actual delivery of the said security occurring at the expiry of the contract. The minimum lot for trading in DFC is 1 contract that consists of standard 500 shares of underlying security. Contract maturity is 90 days after the contract is listed. The new 90-day contract for the upcoming month is listed on Monday (or the next trading day if Monday is a holiday), following the last Friday of the current month. The contract matures or expires on the last Friday (or preceding trading day if Friday is a holiday) of the expiry month. Settlement takes place on T+2 basis.
It is a standardized contract which allows buying or selling of eligible underlying shares at a certain date in the future, at futures price i.e., the price on which it is bought or sold in the CSF market. It is settled in cash, where the result of the settlement is the cash difference between the futures price and final settlement price. The minimum lot for trading in CSF is 1 contract that provides exposure of standard 500 shares of underlying shares. Contract maturity is 90 days after the contract is listed. The new 90-day contract for the upcoming month is listed on Monday (or the next trading day if Monday is a holiday), following the last Friday of the current month. The contract matures or expires on the last Friday (or preceding trading day if Friday is a holiday) of the expiry month. Settlement takes place on T+1 basis.
Note: PSX is currently working on the CSF reforms and shall be made available in the near future.
SIFC is a standardized contract which allows buying or selling a standardized value of the underlying stock index on a future date at a futures price i.e., the price at which it is bought or sold in the SIFC market. SIFC gives an opportunity to investors to trade in the relevant market by buying index futures with related underlying index instead of buying index’s individual securities. It has a contract multiplier of Rs.5 or any other determined by PSX. Contract maturity is 90 days. The new 90-day contract for the upcoming month is listed on Monday (or the next trading day if Monday is a holiday), following the last Friday of the current month.
The contract matures or expires on the last Friday (or preceding trading day if Friday is a holiday) of the expiry month. Settlement takes place on T+1 basis. The Indices on which SIFCs are currently available at PSX are as follows:
PSX is currently working on the development of stock derivative Options.
Equity Market, usually known as Stock Market, is the marketplace where general public can invest, buy and sell shares of the companies listed. Currently, there are more than 522 companies listed on Pakistan Stock Exchange with a Market Capitalisation of more than PKR 7.2 Trillion. These companies are distributed amongst more than 37 sectors or groups of industries. Shares or stocks are also known as equities.
In this market segment, stocks of all companies listed are traded. Transactions are settled in two days (T+2).
Here shares of companies with post-issue paid-up capital between 25 Mn and 200 Mn PKR are traded. Target investors for this segment include Qualified Institutional Buyers (QIBs) and High Net Worth Individuals (HNWI).
In this market segment, investors can trade in securities in lots which are less than normal/ regular lots (500 shares). The minimum number of shares that can be traded is 1. Settlement takes place in T+2 days.
In this market segment, if a Clearing Member (CM) fails to deliver sold securities, then the failed deliveries are squared up in the Square-up Market.
REIT is a fund based trust that owns income-producing real estate, buys real estate, develops, manage/ operates and sells real estate assets. REITs are modelled after mutual funds where all taxable income is paid out as dividends to shareholders.
This is not part of the mainstream market transactions. Here negotiated deals are conducted outside the Exchange Trading Systems and are reported through the interface provided by the Exchange. These deals may also be called Off Market Transactions. These transactions are conducted between brokers.
Fixed income securities include Corporate Debt securities/ bonds and Government Debt securities/ bonds. These bonds are investment products that provide a return in the form of fixed periodic payments as mark-up and the eventual return of principal. Any investor can purchase these securities listed at the Stock Exchange through authorized participants. The Fixed Income products listed at the PSX are:
These include Term Finance Certificates (TFCs), SUKUK Certificates, Registered Bonds, Corporate Bonds etc., and all kinds of debt instruments issued by any Pakistani company or corporation registered in Pakistan.
These are debt instruments issued by the Government of Pakistan. These include PIBs, Treasury Bills, PIBs (Fixed and Floating) and Govt of Pakistan Islamic Ijara Sukuk (Fixed and Floating)
ETF is a pooled investment vehicle with units that can be bought or sold on the Stock Exchange at a market-determined price. Similar to mutual funds units, ETF owns the underlying assets (stocks or bonds) and offers investors a proportionate share in a pool of stocks, bonds, and other assets. The ETFs have Net Asset Values (NAVs) which are listed on PSX website. The NAV of an ETF is the sum of marked-to-market values of the individual portfolio holdings plus the portion of the assets held in cash and cash equivalents, less all the accrued ETF expenses. The NAVs of these securities are disseminated during the day. The Settlement Dates of these securities is T + 2.
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In MTS (Margin Trading System), an investor can buy MTS eligible securities having a part percentage of funds available of the total value of MTS eligible securities bought. An investor may buy a number of MTS eligible securities while having only a fixed percentage of funds available. The remaining amount is financed or leveraged by the Brokerage firm. The percentage of funds required for MTS is defined by the Brokerage firm which shall not be less than 15% of the total value of MTS eligible securities purchased or VAR (Value at Risk – A percentage number signifying the decline in the value of an asset class in a particular period of time). A mark-up rate of not more than Kibor+8% is charged against the leveraged securities held under MTS. Margin Trading Contracts are settled in T+2 days.
The Ministry of Finance (MoF) has recently approved some amendments to the rules governing the issuance, registration, trading, and transfer of GDS through the Capital Market Infrastructure Institutions (CMIIs) such as the Pakistan Stock Exchange (PSX), National Clearing and Settlement Company of Pakistan (NCCPL), and Central Depository Company of Pakistan (CDC)
As per the new arrangement, PSX may conduct the primary market issuance of Government Debt Securities, starting from December.
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