The management of the Pakistan Stock Exchange (PSX) has proposed a reduction of brokerage commission on Fixed Income Exchange Traded Fund (ETF) from 0.15 percent (3 paisa) to 0.01 percent (1 paisa) of the transactional value.

According to the notification, the step is being proposed to promote the acceptability and marketability of fixed-income ETFs as a viable investment option for investors. It is considered important to have a different structure of minimum brokerage commission for both classes of ETFs.

It is important to mention that there are some inherent features of fixed income ETF that distinguish it from equity class ETF.

The upside potential of equity class ETF is significantly higher than that of fixed income ETF as stock may hit the upper cap of the circuit breaker in a trading day but T-Bills/PIBs are least likely to show much volatility, particularly when the interest rates are at a low level, the notification said.

The current impact of brokerage commission of 0.3 percent (on both buy and sell sides combined on an intraday trade will bound the investors to hold the units of fixed income ETF for at least 2 weeks (assuming an annual return of 8 percent) just to reach the breakeven.

The management sought views and comments of the interested parties on the amendments of reduction in brokerage commission from 3 paid to 1 paisa of the transactional value.

Source: Pro Pakistani