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Pakistan Stock Exchange Ltd. is on the verge of a significant transformation as it aims to offer traders the option of settling futures deals in cash. This move, planned to be tested by March, is set to bring about a major shift in the nation's bourse. According to Farrukh H Sabzwari, the newly appointed chief executive, the first product on the table is cash-settled futures followed by options. This initiative is expected to have a profound impact on derivatives trading in the world's best-performing equity market this year.

Enhancing Liquidity and Market Sentiment

Currently, PSX offers deliverable futures trading where open positions on expiry day require either the seller to deliver shares or the buyer to take delivery. However, traders prefer cash settlement as it reduces the capital requirement. The move to introduce cash-settled futures is expected to improve liquidity, which often dries up towards contract expiry due to delivery-related trades. Pakistan's stocks have been on an upward trajectory, with the benchmark KSE-100 Index surging by 170% over the last 18 months. This remarkable growth is attributed to the nation's ability to avert a default and stabilize the economy after multiple bailouts from the International Monetary Fund. The currency has stabilized, dollar reserves have risen, and inflation has dropped to the slowest pace in almost six years. An easing monetary policy is also fueling market sentiment, with the central bank likely to cut interest rates for the fifth straight meeting on December 16, as per a Bloomberg survey.The economic stability and the introduction of new derivatives products are expected to further boost sentiment. Sabzwari, formerly the head of the Securities and Exchange Commission of Pakistan, believes that this is the perfect time to increase retail participation in the market, which currently stands at less than 1% of the population. He also anticipates that the number of initial public offerings in the country will exceed last fiscal year's tally of 12, attracting more first-time investors. "It is no longer just about getting IPOs; it's about consciously seeking private sector companies of a certain size," he said, highlighting that new offerings in the last five years added less than 6% to the aggregate market value.