The Pakistan Stock Exchange (PSX) is set to introduce cash-settled futures contracts by March 2025, a move aimed at boosting trading activity and liquidity. The announcement came from Farrukh H. Sabzwari, the newly appointed CEO of PSX, who took charge in November.
In an interview, Sabzwari outlined the exchange’s strategy, with the introduction of cash-settled futures as the first step, followed by options trading. He emphasized that this move would enhance the derivatives market in Pakistan, which has emerged as one of the world’s best-performing equity markets in 2024.
Currently, PSX offers deliverable futures, requiring traders to settle open positions through physical delivery of shares. However, cash-settled futures are expected to be more attractive to traders as they require less capital and eliminate the need for delivery-related transactions, which can often reduce liquidity toward the contract’s expiry.
Sabzwari’s vision aligns with a broader effort to improve liquidity and reduce trading friction, which has been a concern as the expiration of futures contracts nears. Cash-settled futures, he believes, will create a more efficient trading environment and keep market activity consistent.
Pakistan’s stock market has been on a strong upward trajectory, with the benchmark KSE-100 Index surging 170% over the past 18 months. This rally has been driven by the country’s improved economic outlook, following multiple bailouts from the International Monetary Fund (IMF) and steps toward avoiding a potential default. As the economy stabilizes, Pakistan’s currency has strengthened, dollar reserves have increased, and inflation has slowed to the lowest pace in nearly six years. Additionally, the central bank is expected to cut interest rates for a fifth consecutive meeting in December, further boosting investor sentiment.
According to Sabzwari, the economic recovery and the introduction of new financial products could further fuel positive market sentiment. He also sees this as an opportune moment to increase retail participation in the stock market, which currently involves less than 1% of the population. Sabzwari is optimistic that initial public offerings (IPOs) will exceed the 12 offerings seen in the last fiscal year, attracting more first-time investors.
“The focus is no longer just on IPOs but on seeking out private sector companies of significant size,” Sabzwari said, highlighting that recent IPOs have contributed less than 6% to the market’s total value over the past five years.
With the introduction of cash-settled futures and increased retail engagement, the PSX aims to foster further growth and stability in Pakistan’s thriving equity market.
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