ISE Managing Director Aftab Ahmed Chaudhary told Business Recorder on Tuesday that the SECP has issued UTS regulations for guiding framework for operations of joint trade of LSE and ISE. This is the first initiative by any of the stock markets in Pakistan to link together their trading systems whereby members of both exchanges would be able to trade from a single platform.
Both exchanges had inked the agreement on UTS for which necessary approval of SECP was required for making the system operational. In this connection, the SECP has approved the rules and regulations.
The system would enable both ISE and LSE to retain much of the trading volume within this common trading system, which at the moment is shifted to Karachi Stock Exchange. The UTS would bring more transparency in the trading system of both exchanges.
The launching ceremony of UTS would take place in Islamabad on April 30, he added. Aftab said that UTS would provide a common trading platform to the members of the two exchanges. ISE and LSE would be inter-linked through DSL, optic fibre and radio link. The latest technology of first ever nature has been used for implementing the system. The members of the two exchanges can execute their trading with each other through intranet. As per agreement, the ISE members shall pay two paisa per share to the counter of LSE members as access fee.
The UTS will be quite beneficial for investors as it will provide better price discovery, risk minimisation and cost-effective trading at the joint trading platform of both exchanges.
He said that although Pakistan's stock market has been giving better returns to the investors due to economic growth and reforms carried out in the stock market, the basic problem of market fragmentation remained un-addressed so far. The three stock markets are fragmented because trade orders of investors entered into trading system of one exchange could not be matched with those entered at another exchange, even if the security being traded is listed at all three exchanges.
Such fragmentation has been causing a number of problems for all stakeholders, particularly the investing public. This has reduced liquidity, affected price discovery, has caused risks in custody, increased cost of trade, affected quality of execution, reduced transparency in trading, obstructed market surveillance, thereby keeping market access limited and not letting the market realise its potential.
In order to address these market problems, the ISE and the LSE conceived the idea of having a common trading platform. With the onset of the UTS, it is expected that the above problems in the local market would disappear to a great deal.
With the inception of UTS, it is expected that a healthy state of competition would occur as a result thereof, and the securities market of the country, particularly LSE and ISE, would progress.
Aftab said that one of the advantages of UTS would be the direct access to a larger market eliminating control issues such as custody of securities, payments etc currently being faced while trading through KSE members.
It will assist in bringing back the order flow that is routed by the members of ISE and LSE to members of KSE. The UTS would expand the trade activities in the length and breadth of the country and would greatly help the promotion of capital market.
The issue of thin participation of the populace of Pakistan in the stock market due to less awareness and limited outreach would also be adequately addressed through UTS.
Above all, this system would bring more transparency and efficiency for the investors. Both exchanges would be in a better position to effectively monitor that investors' interest are adequately protected.
Besides, both exchanges have specially focused on the risk management at UTS, which would also be uniform for both exchanges. This system also envisages introducing new products, which would bring diversity in the securities market.
It is expected that the new trading facility would significantly increase the business volumes of LSE and ISE, Aftab said.