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 forward contracts to buy or sell a certain underlying instrument with actual delivery of the said instrument occurring. The minimum lot for purchasing these shares is 500 shares. Settlement takes place 30 days after the contract is purchased. The Opening of the Contract is Monday, preceding the last Friday of the month. The Expiration of the DFC is the last Friday of the calendar month.
It is like a standardized contract which allows buying or selling a certain underlying instrument at a certain date in the future, at specified price. Single Cash Settled Futures are standardized contracts to buy/sell single stock futures to be settled in cash, where the result of the trade is the cash difference between the buying and selling price. Settlement occurs purely on cash basis. Settlement can occur 30, 60, & 90 days after the contract is purchased.
SIFC is an agreement to buy or sell a standardized value of a stock index (basket of shares) on a future date at a specified price. SIFC gives opportunity to investors to trade in entire stock market by buying index futures instead of buying individual securities with the efficiency of mutual funds. Currently 90 days SIFCs are available at PSX. The SIFCs currently available on PSX are as follows:
The derivative product of Options will be introduced in near future on PSX.
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 558 companies listed on the Pakistan Stock Exchange with a Market Capitalisation of PKR 9,386 Bn. These companies are distributed amongst 35 sectors or groups of industries. Shares or stocks are also known as equities.
The Equity segment has following sub-markets wherein securities can be traded.
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, National Savings Bonds, and Islamic Ijarah Sukuks.
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. This product will be available on PSX in the near term.
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.