The committee headed by the President Union Bank Limited, Shaukat Tarin, was constituted by the Ministry of Finance to replace COT (Badla) financing with margin financing last year. It had come up with the Continuous Fund System (CFS) scheme as an aftermath of COT in September, 2005.
The Tarin Committee met on Monday to review the progress on CFS, which was capped at Rs 24.5 billion with maximum borrowing rate of 18 percent.
The committee was informed that CFS had been introduced on real time basis, meaning displaying on the screen during trading hours. Around 20 to 30% margin was being provided. However, there were issues in C to C (Company to Company) transactions and brokers were not fully reporting private deals. And, in case of a crunch this could be more problematic.
It was also debated whether the cap on CFS should be enhanced or not. It was felt that only when forward counter converts in a futures market with 30, 60 and 90 days contracts and the Ready Market fully becomes a cash/spot trading market that the cap on CFS could be raised to Rs 50-55 billion.
As for margin financing, the issue of documentation, high margin demanded by lenders (banks) and pricing were said to be the main issues in lack of progress.
It was also felt that the Turkish (Takas Bank) Model needed to be replicated and progress on it put a fast track.
A new sub-committee was constituted under Shaukat Tarin with representation from Arif Habib, AKD, Faysal Bank, Bank Al-Falah, MCB, CDC, NCCL and SECP to work on the irritants holding margin financing and to come up with a system to phase out the Badla (COT) from the capital market.