PSX sets up a debt securities platform

Pakistan Stock Exchange (PSX) has taken an important step in establishing and developing a dynamic trading platform for debt securities such as Treasury Bills, Pakistani Investment Bonds (GDP) and Sukuk ahead of a likely massive government fundraising for low-cost housing. , construction and other projects.

PSX signed an agreement with Bank Alfalah on Tuesday. The latter became the first commercial bank designated as a market maker for debt securities, meaning that the bank would increase debt securities trading activities by providing liquidity by constantly quoting the buy and sell prices. listed debt securities to help investors actively trade securities.

“Banks have almost no cash to finance (worth (trillions of rupees)) housing and construction projects in Pakistan. The development of the second debt market (at the PSX) will allow insurance companies, pension funds and mutual funds to offer long-term financing for housing and construction projects, ”said the Bank Alfalah Chairman and CEO Atif Bajwa at the PSX deal signing ceremony.

Debt financing through a public tender allows the fundraiser to acquire funds at lower rates than banks usually offer negotiated loans.

For example, the government raised a debt worth Rs 200 billion through Pakistan Energy Sukuk-II at a rate 10 basis points lower than the six-month Kibor of the PSX in May.

Rather, it had previously incurred similar debt under Pakistan Energy Sukuk-I traded at an interest rate of Kibor plus 80 basis points.

“The secondary market for debt securities in the developed world is found in several stock markets,” said Farrukh H Khan, CEO of PSX, adding that the introduction of the market maker for debt securities would open up new opportunities for investment for stock market traders.

“We are in negotiations with other financial institutions who wish to become market makers for debt securities,” he said without citing a financial institution.

The development of the debt market will create a favorable environment for the whole economic system. “The size of mortgage financing is larger than the gross domestic product (GDP) in many developed countries. The development of the secondary debt market (at PSX) will prove useful for the economy and increase the chances of growth of economic activities, ”Bajwa said.

“The growth of the debt market is a strategic objective of the PSX and critical for the economic growth of Pakistan,” said the CEO of the PSX.

There are around 550 companies listed on the PSX, of which around 25 are debt securities. They are worth Rs7.47 trillion. If the size of debt securities increases to 10-20% of equity securities in the future, it will increase the market capitalization by billions of rupees or more than one trillion rupees.

Responding to a question about the difference between debt securities traded before and after the introduction of the market maker, the head of Bank Alfalah Treasury and Capital Markets group Ali Sultan said that the availability of liquidity by the market maker would increase exchanges. volumes in the debt market.

“Currently the volumes are still low, if someone wants to sell debt securities there are no buyers most of the time and vice versa,” he said.

The market maker will initially provide liquidity for the government guaranteed debt securities. Later, it will do the same for private sector securities.

PSX had been striving to develop the debt market for several years. Previously, Pakistan’s Securities and Exchange Commission (SECP) amended a law that allowed commercial banks to offer services as market makers.

The introduction of Market Maker will usher in a new chapter in the growth of the debt market, thereby ensuring a deep, liquid and transparent debt secondary market in Pakistan. “This will benefit both (bond) issuers and investors,” said the CEO of PSX.

This move would further develop Pakistan’s debt market at regional and international levels, he said.

At present, the domestic market is mainly focused on bank loans for financing needs. This needs to be complemented by capital market instruments as an alternative and efficient means of financing, said the CEO of the bank.

“The corporate sector should be encouraged to tap the capital markets so that borrowers can diversify their sources of funding while investors have several investment options,” he said.

Posted in The Express Tribune, November 18e, 2020.

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John A. Bogar