KARACHI: The Pakistan Stock Exchange (PSX) on Friday announced the introduction of a new futures eligibility criteria and the launch of 90-day maturity Deliverable Futures Contracts (DFC). The changes would come into effect from DFC August 2021 and would start from July 26.

Many investors who believe that the current 30-day future contract was the spoiler of the market as it put the market under selling pressure in the last week of every month, warmly greeted the move.

Since the future contracts have to be settled or rolled over to the next month on the last week of every month, the investors also remained in a high state of anxiety as they watched for the task to be smoothly completed each month. Such market participants had been clamouring for the introduction of longer-term maturity contracts.

A former official at the regulator’s office said that the proposal to introduce 60-day and 90-day future contract had been submitted to the apex regulator which was under analysis for all factors and ensuring effective risk management. He said that earlier on Oct 19, 2020, the PSX had released a notice “for solicitation of public comments regarding the proposed amendments to regulations in relation to future market of PSX”.

Khurram Schehzad, CEO Alpha Beta Core, supported the new regulation, saying that it would help improve liquidity and depth of the market. Instead of concentrating in one month, the investors would have the option to diversify exposure over three months and manage their risk and liquidity. “It would also provide opportunity of arbitrage between one and three months”, he said.

But there are detractors, Sani-e-Mehmood Khan, former general manager of the PSX, said that the “changes were a recipe for disaster”. He said that numerous reports of the SECP suggested that Deliverable Futures create delivery pressure and stifle the market as it serve a systematic tool of mass erosion of values of the traded stocks.

“Inclusion of penny stocks like Silkbank and KEL along with inclusion of ETFs in the 90 days’ deliverable futures pose serious questions on the merit and due process of the matter”.

The PSX said in a statement that as per the new criteria, there would be no segregation of A, B categorisation. “Stocks would be selected based on such quantitative factors that measure real liquidity”. Exchange Traded Funds (ETF) would also be eligible if certain conditions were met.

“However, such companies that have obtained stay order from court against any inquiry/investigation initiated by the Commission shall not be eligible”, PSX observed. All eligible companies and ETFs shall be eligible for trade on Deliverable Futures and Cash Settled Futures Markets.

PSX Managing Director Farrukh H. Khan said, “The launch of the international standard 90-day DFC is a positive development for the stock exchange and for all stakeholders of the capital market. 90-day DFC shall open each month such that the market shall have three different maturities (current month expiry, next month expiry and last month expiry) at the start of each contract month”. He stated that based on the recent notified list, 84 companies and one ETF were futures eligible.

Published in Dawn, June 19th, 2021