The Karachi Stock Exchange (KSE) on Wednesday invited applications from trading right entitlement certificate (TREC) holders to become trading participants in the government debt securities market.

In a meeting held on January 25, the KSE board of directors already approved regulations for the government debt securities market, which will broaden the investor base in the debt market by allowing the trade of treasury bills, Pakistan Investment Bonds (PIBs) and Ijara Sukuk on the stock exchanges.

However, the current over-the-counter (OTC) market of government securities and all its associated platforms will continue to work as usual. Currently, the government issues PIBs and holds auctions for market treasury bills in which only selected banks and financial institutions take part as ‘authorised primary dealers’.

REQUIREMENTS
Rs20m
is the minimum net equity that brokers must maintain to be eligible for trading government securities

For fiscal year 2013-14, the State Bank of Pakistan (SBP) has appointed 11 banks/financial institutions as primary dealers of government securities.

Under the current mechanism, secondary market transactions take place among these institutions through the Bloomberg Bulletin Board facility on a counterparty risk basis, also known as OTC transactions.

Henceforth, all primary dealers will be allowed to conduct proprietary trading of government securities on the bourse if they wish to do so directly, on the workstation given by the exchange. Such primary dealers will be referred to as ‘trading participants’ on the exchange.

Besides acting as market-makers to ensure liquidity in the government debt securities market, these primary dealers will also settle and clear the transactions executed by their customers through other designated trading participants on the exchange.

All primary dealers, who opt to participate as trading participants/market-makers on the exchange, will be required to formally inform the SBP about the date of the start of operations. Meanwhile, all non-primary dealer banks/financial institutions that desire to transact on their own account, or settle and clear transactions executed by their customers, will have to route transactions through other designated trading participants on the exchange.

The criteria for the selection of stock brokers eligible for trading of government debt securities states that they must have a net equity of not less than Rs20 million. Moreover, all brokers that become trading partners will be required to furnish a statement stating their net equity position to the exchange on a quarterly basis.

The regulations also state that the applicant must also have “adequate” experience in capital and money markets.

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