KARACHI: The management of Pakistan Stock Exchange (PSX) has initiated a process to launch the index-based option contracts during second quarter of the calendar year 2016.
This would add depth to the market and to allow investors to leverage positions for large diversified portfolios in line with international best practices, said PSX statement here on Friday.
The options were globally popular derivative products which provided various benefits that help to create orderly, efficient, and liquid markets, and gives flexibility, leverage and risk minimization to the investors.
The index option contract is an arrangement between the seller and the buyer in which the buyer has the right to buy or sell a security /index at the fixed time in future at a price stipulated at present.
When prices are unfavorable, the buyer can forfeit his/her premium and that would be the maximum loss, whereas, if the prices are favorable, which is above the stipulated price, the buyer can purchase the Option and make profit.
Under the Regulations Governing the Index Options; only the Institutions, TREC Holding Members of PSX and Non-Broker Clearing Member of the NCCPL that are meeting the conditions set in the eligibility criteria are eligible to become Option Writers for which the main idea is to ensure that the Writer of Option Contracts has sound financial and technical standing to qualify for this mode of trade.
Any Broker / entity that fulfills the eligibility criteria given below would be considered eligible as an option writer in the options market:
i) A broker, fulfills the capital adequacy requirements given below:
Minimum net capital balance of Rs 20 million and he shall be required to submit wealth statement or a net capital balance certificate certified by a Chartered Accountant.
Minimum equity (net of provisions and capitalized losses if any) of Rs. 25 million as per latest audited financial statements.
ii) All Non-Broker Clearing Members of the National Clearing Company of Pakistan Limited.
All eligible TREC Holders / other entities interested to become an option writer are requested to kindly send in their nomination and contact details to the undersigned latest by Friday, April 15.
