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KSE planning to introduce derivatives in 2008

By Arshad Hussain

KARACHI: The Karachi Stock Exchange (KSE) is waiting for the final SECP approval of the new products ‘Stock Index Futures’ KSE, which are likely to be launched in March 2008, said Adnan Afridi, Managing Director, KSE.

Mr Afridi, who was also recently elected vice chairman of the executive committee of South Asian Federation of Exchanges (SAFE), said, “Such new products will add sophistication to our markets and attract new investors in addition to providing hedging tools for existing investors. The Stock Index Futures are being traded on US stock exchanges from early 1980s and shortly thereafter in other markets. Market participants use them for a variety of purposes, including hedging, speculation, asset allocation and arbitrage.

In addition to KSE-30 Stock Index Futures, the KSE also plans to introduce Sector Indices and Options in 2008.

In Pakistan, the managing director said, “the KSE 30 Index will act as the Index Futures contracts, which will be traded on KSE. The KSE-30 Index is a liquidity-screened and free-float adjusted market capitalization index of 30 stocks listed on the KSE.”

About the demutualization of the exchanges, the managing director said, “it is another positive measure of the federal government towards confidence building and bringing investment into the country.”

He said, “majority of the stock exchanges of the world have approached the top management to make their investment in Pakistan from a demutualization platform, however, it would be hard to say at this time, which stock exchange is coming or how much investment is expected.” After signing of the ordinance by the president, he said, “the KSE management would have to convert the stock exchange into corporate entity in 100 days.”

It has already been decided that 20 percent shares of this corporate entity would be sold to public, 40 percent to strategic institution and 40 percent among the current share holders.” The demutualization would also bring new technologies, he added. The current management of the KSE has been focusing its attention on launching new products for the local and foreign investors and in this connection a separate ‘Product Development Group’ has been set up within the KSE organization.

He said: “If we compare Pakistani stock markets with the world bourses, our markets were offering high returns over the past several years. The KSE-100 recorded its all-time high at 14,815 points on December 26, 2007.

Corporate profitability, attractive pay-outs and low P/Es by regional comparison have contributed to the relative strength of the KSE in the backdrop of political and law and order volatility.

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