Borrowing to buy, and selling what you do not own
Two questions come up constantly from people new to the Pakistani market: can I borrow to buy more, and can I make money when a stock falls.
Both answers are yes. Both come with machinery that is worth understanding before you use it, because the constraints are where the real information is.
Margin Trading System
MTS is the regulated way to buy more than your cash allows. The National Clearing Company runs it. A financier puts up the money, you put up a margin, and the position is carried for you.
Three features decide whether it is usable for you:
The initial margin is 15%. You fund roughly a seventh of the position and the financier funds the rest. That is meaningful leverage.
It is priced off KIBOR plus a spread, commonly quoted around KIBOR + 8%. The important consequence: your cost of carry moves with the policy rate. In a cutting cycle MTS gets cheaper and positions get easier to hold; in a hiking cycle the same position starts costing real money while you are still deciding whether you were right.
Not every stock is eligible. MTS runs on an eligible-securities list, and the small, illiquid names where leverage would do the most damage are generally not on it.
The thing MTS gives you that is not obvious: the market-wide MTS position is published. It is a direct measurement of how much borrowed money is sitting long on the exchange. A rally carried up on rapidly rising MTS is a different animal from a rally on cash buying, because leveraged holders are forced sellers if the tape turns. It is one of the few leverage indicators in this market that you do not have to infer.
Going short, properly
Short selling on the PSX is legal and regulated, and it is narrower than the word suggests in other markets.
You must borrow the shares first. This runs through the Securities Lending and Borrowing mechanism. There is no meaningful naked shorting: you locate and borrow stock, then you sell it. If you cannot borrow it, you cannot short it.
The uptick rule applies. A short sale cannot be executed at a price below the last traded price. In practice you can only sell short into strength, not into a falling tape. This is deliberate — it stops shorts accelerating a decline — and it means short selling is far less useful as a panic instrument here than newcomers expect.
The borrow has to come from somewhere. The SLB pool is thin for most names. Where there is no lender, there is no short, regardless of how obvious the trade looks.
Put those together and the practical reality is this: shorting on the PSX works in large liquid names, costs a borrow fee, and cannot be used to press a stock that is already falling. Anyone describing a Pakistani stock as "under a short attack" is usually describing ordinary selling by people who owned it.
Why the constraints are the useful part
It is tempting to read all this as red tape. It is more useful to read it as information.
The 15% margin, the eligible list, the pre-borrow requirement and the uptick rule together mean that leverage on this exchange is visible and bounded. You can see the aggregate MTS number. You can see which names are even eligible. You cannot see an unmeasured pile of offshore leverage building in a corner, because the structure does not really permit one to form.
Compare that to the 10% circuit breaker on individual scrips and the 5% move over five minutes that halts the KSE-30. The exchange's whole design leans the same way: slow things down, keep the leverage countable, make the forced seller appear in a number somebody can look up.
If you are thinking about using either
Three honest cautions.
MTS turns a 15% adverse move into a wipeout of your margin, and the PSX allows a 10% move in a single session. Two bad days is the entire cushion.
The cost of carry is not fixed. Model the position at a higher KIBOR than today's before you take it.
And a short that you cannot borrow is not a trade, it is an opinion. Check the borrow before you build the thesis.
Mechanics described here are those of the PSX, NCCPL and the SECP framework as they currently stand. Rates, margins and eligible lists change; check the current rules with your broker. Nothing here is financial advice or a recommendation to use leverage.