Pakistan Stock Exchange Boosts Liquidity For The MSCI Index Upgrade

In wake of the recent MSCI upgrade news, Pakistan Stock Exchange (PSX) is all set to make some changes and implement measures to boost liquidity in the market. PSX is geared up for these changes and anticipates to settle trade orders amounting to $1.25-1.5 billion on 1st June.

One of the senior PSX officials said that these measures have been taken in order to prepare for the upgrade of the Pakistan Stock Exchange to MSCI Emerging Markets index from its current status of Frontier Market Index which is due on 1st June. The quantum of trade order worth $1.25-1.5 billion is eight times higher than the average market trading orders of $150-180 million.

Also Read: KSE-100 index creates history by crossing 50,000 points

The amount of liquidity injection in the market is massive. With the T+2 settlement system, the experts anticipate post MSCI EMI buying in a few days.

PSX has adopted the following four measures in order to boost market liquidity:

Real time gross system

State Bank has supported PSX in the initiative to provide a smooth real time gross system. It required some of the banks to make their staff available for a couple of days before 1st June. Considering the fact that only a couple of banks in the country deal with foreign investors including Deutsche Bank, and Standard Chartered Bank so their staff was required to arrive around 8:00am i.e. 1.5 hour before the market opening time.

During these 3-4 days, bank staff would ensure trade order processing of foreign investors early in the morning. In addition, when the market would open, these orders would be executed smoothly. The bank staff is also required to stay till 3:30pm instead of their regular Ramadan time of 1:45pm in order to prevent any hiccups in order processing.

The PSX official also said:

“Their increased availability would keep their Real Time Gross [settlement] System smooth and help the PSX deal with larger trader orders”

Quick Read: MSCI Emerging Market Index – Pakistan upgraded to emerging market status

Institutional delivery time

PSX has taken a decision to reduce the time span for confirming larger trade orders. The time has been reduced to 10-12 minutes instead of 1-2 hours. Since institutions place large orders so their orders are managed by Institutional Delivery System (IDS).

One of the officials of PSX stated:

“The reduction in time to minutes would not keep brokers’ funds stuck into the system and would allow them to accept larger trade orders”

Read More: Rs7 billion scandal jolts PSX, authorities moved to take serious action

Post close session

Another initiative taken by the authorities is to extend the time of trading session by 15 minutes. The added time has been termed as the “post close session”. Once the regular market time ends, the post close session begins after 30 minutes. However, trading will take place at the closing price.

The official also quoted:

“Most passive fund managers want to buy shares at closing prices. The Post-Close Session would meet their desires”

Also Read: PSX to sell 40% shares to China

Closing price

Pakistan stock exchange has made a major change in the formula to calculate the closing price of a stock for a limited time between 26th May and 2nd June. The closing price of every stock will be the average price of last two hours. The changes have been made considering the recent manipulation in the UAE and Qatar markets.

The PSX official shared his views and said:

“The UAE stock market froze on the first day of return after foreign funds placed huge buying orders”

Usually, foreign investors are behind these huge trading orders, especially foreign funds with exorbitant funds worth $1.4-1.7 trillion in hand. These funds track Pakistan’s rating in the MSCI EM and trade accordingly.

It is expected that foreign funds would invest the entire amount currently allocated for Pakistani funds soon after the announcement of MSCI EMI. In the end he added that “the PSX is expecting foreigners to invest $300-400 million on the day”.

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