Abstract:
Stock market may be considered as an important indicator of economic system. For effective operation every stock market requires to have liquidity which should facilitate investors, brokers and banks. Sometimes markets fall short of liquidity called liquidity crunch. How this liquidity crunch should be addressed? What measures can be taken in this respect? The only solution to the problem is to introduce a liquidity product in the market. What is a liquidity product? The basic purpose of a liquidity product is to integrate the financiers and financees to ensure liquidity. The financiers offer their idle money to the financees against interest charges. In this way the investors get money and the liquidity problem can be solved.
Pakistani stock market had also been operating with leverage products such as Carry over trade (COT) and Continuous Funding System (CFS). But after 2008 these markets are observing severe liquidity crisis as they are missing any such product. In order to address this problem, the regulatory authorities have taken a decision to introduce Marginal Trading System (MTS). The concept though has not yet been implemented but it is expected to be available in the market soon. After studying and knowing the opinions of all the stakeholders, we have come up with some of the advantages and disadvantages. On the basis of our research and keeping in view the disadvantages we have tried to recommend some solutions which may be beneficial for the market.
