DERIVATIVES
Submitted to: Ms. Sarwat Ahson
Saadia Ahmed-12809
Institute of Business
Management
They were introduced early in 2007. And did not gain popularity at all.
Presently 15 companies are available for these cash-settled futures.
Standard contract is of 30, 60 and 90 day duration, with daily marked-to
market of losses & gains. There is necessarily an equal number of buyers and
sellers in the market and thus smooth settlement on the last day of the
contract is ensured.
Mutual fund are not allowed to trade in future as per Section 58 of NBFC
regulation
Not gaining popularity because of the availability of other resembling
leveraging instrument of CFS and also because of liking for deliverable
futures for various reasons.
However, on the recommendation of the committee CFS MK II and
deliverable futures have been discontinued recently.
Investors can BUY (go long) or SELL (go short) in a future, depending upon his
/ her view about the stock. Shares of 42 companies are eligible for trading on
the futures counter at the KSE.
Standard contract of up-to five-week duration. In the last week of every
month, the contract for the next month is opened (roll-over week). First
Wednesday of next month is the settlement date.
Excessive positions / trading discouraged to avoid / reduce manipulation.
Risk management is stringent (client-wise and broker-wise position limits are
in place).
Provisional trading at the time of the IPO of a share is also an example of
futures trading.
Stock Index Future Contracts of 1-3 months are available only on a rolling basis- for
example, for Jan, Feb and March months. When the Jan contract expires, there will
be a fresh contract month available for trading viz. the April Contract. These months
are called the Near Month, Middle Month and Far Month respectively.
Final Settlement Price of the KSE-30 based Index Futures is based on a set of 121
reading of 15 second intervals (price points) of the underlying index levels taken
between the last half an hour of trading. The highest and lowest 20 price points will
be ignored and the closing price computed as an average of the remaining 81 price
point will be the Final Settlement Price for the settlement of the contract.
Daily Settlement Price is the Volume Weighted Average value of last half hour of
trading in the KSE30 Index based Stock Index Futures. This reference price is used
as a basis for collection of M2M losses on daily basis.
Margin money is like a security deposit or insurance against a possible Future loss of
value. Once the transaction is successfully settled, the margin money held by KSE is
released / adjusted against the settlement liability.
The basic objective of the Initial Margin is to cover the largest potential loss in a
single day. Both buyer and seller have to deposit the margins. The Initial Margins
are deposited in two parts:
- 5% as pre-trade at the time of entering the order
- 7.5% after the execution of order
The initial margin is currently fixed at 12.50% of the notional value of the stock
index futures contract.