According to a notice issued by the PSX, it has observed that F8 window especially designated in the trading system for Blank Sale is being used for executing sale transactions in the DFC market despite owning securities or having pre-existing interest. It is a violation of the PSX if it is a mistake and is not being modified through sale modification interface provided in the trading system.
The notice issued by the PSX directed all trading right entitlement certificate (TREC) holders to comply with clause 13.5.2 of PSX Regulations relating to the execution of blank sale in deliverable futures contract (DFC) market.
The notice said that if a broker executes sale through the special order window as mentioned in the sub-clause or executes blank sale through the sale order window due to inadvertent mistake, such broker shall be required to modify such sale through the interface provided in the trading system for this purpose during the sale modification session.
Such modification session shall be subject to a fee as per the deposit, fee, contribution and other sums schedule.
In case the broker fails to modify such sale during the sale modification session, the exchange shall take disciplinary actions as per regulation 20.9.
The authorities expect the move will eventually help improve the index, but brokers fear that it would lead to further decline in volumes.
According to a senior official of the Securities and Exchange Commission of Pakistan, short selling is allowed only if that broker does not possess the share of that company.
The maximum limit for short selling for the broker is up to three percent of free-floating shares of any company, whereas for each account holder, 0.5 percent of the free float is the maximum limit.
Explaining the situation the officer stated that the share price is higher at the futures market so that broker sells shares of any company, but to make a profit, the brokers buys the shares of the same company to square off its sale from the ready market when the prices are low.
“But extensive selling has been observed in the future market and some brokers were selling at a limited quantity at low prices so that the impact of the reduced share price is visible at the ready market too, this way they buy back the shares at low prices,” the official added.
The official added that without this speculative activity, the prices would improve and the index would start moving upwards.
Meanwhile, some brokers have expressed displeasure over the move on the grounds that strict restrictions on short selling would eventually lead to a reduction in trading activities and would lead a decline in volumes.
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