PM's timely intervention saved stock market

Sep 05 - 11, 2005

Thanking the Prime Minister for his timely intervention to resolve the ongoing tussle between the regulators and members of the stock markets on Badla financing, the Chairman Islamabad Stock Exchange (ISE) Abdul Waheed Jan, said that it has saved the situation which was deteriorating rapidly. "The stock exchanges have got what they wanted though under different set of rules. The market has not only stabilized but has also started its upward journey," he added.

The stock markets were suffering from liquidity problems as the Securities and Exchange Commission of Pakistan (SECP), in its efforts to replace Badla with Margin Financing, was gradually reducing the upper ceiling of Badla Financing through banks, which has not yet taken a formal shape making this facility easily available to the investors on the spot. Upper limit has been brought down to Rs. 12 billion from Rs. 25 billion resulting in acute shortage of liquidity, badly affecting the small investors, Mr. Waheed added.

Continuing, the Chairman ISE said that as a seasoned and experienced Economist, the Prime Minister devised a way out acceptable to all under Continuous Funding System (CFS). He raised the maximum ceiling of trade financing to Rs. 25 billion meeting the main demand of stock traders. Not only that the Prime Minister told the management of the three stock exchanges in the country whom he had invited to the Prime Minister House that they could come back to him within 10 days with any new proposal that they think best suited to make stock exchanges more attractive for the investors. "What else could be expected from the Prime Minister," Mr. Waheed observed.

The ISE Chairman also thanked Chairman SECP Dr. Tariq Hassan for his large heartedness as he publicly announced that the SECP will provide full cooperation and assistance in implementing the decisions taken during the meeting of the Prime Minister with the members of the stock exchanges of the country.

Replying to a question about the future direction of the exchange, Mr. Waheed Jan said that the Islamabad Stock Exchange was focusing completely on the proposed demutualisation and merger of ISE and LSE which would create a new stock exchange in the country and emerge as a competitor to the dominating KSE. He said that the paper work regarding the same was in the final stages. In this connection, he said that the Joint Committee on Demutualisation and Integration of the LSE and ISE is scheduled to give a precise presentation to the SECP next week to apprise the apex regulator on the developments made so far by both the exchanges and plans are in the offing in connection with the merger of two bourses to convert them into the National Stock Exchange (NSE).

Mr. Waheed Jan stated that the presentation to be given to the SECP would mainly focus on the future business plan as well as the regulatory structure of the new stock exchange. According to these plans, both the exchanges shall convene their extra ordinary general bodies meeting wherein the Scheme of Arrangement leading to the formation of new stock exchange shall be approved, and submitted to the SECP for its final approval. He said that the final merger of both the exchanges would take place on the appointed date, as shall be approved by the SECP. It may be mentioned that the ongoing demutualisation and merger process is a part of the capital market reforms programme, being pursued by the SECP.

Highlighting some of the salient aspects of the new governance and organizational structure of the new exchange, Mr. Waheed Jan stated that the new entity so formed through the Amalgamation of LSE and ISE would have two distinct and yet interrelated functional structures- the Commercial/Business arm and the Regulatory division so as to create a clear cut firewalls between these conflicting functions as they exist in the present organization of the stock exchanges. He said that in this way, the new exchange would be in a better position to effectively perform the regulatory functions such as monitoring and surveillance functions without the interference of market players.

It is expected that the formation of the new exchange through the merger of two exchanges would eliminate the interest factor of the brokers in the affairs of the new bourse, which would also have a distinct regulatory role thus reducing the burden of the SECP.

Another noteworthy development taking place at the Islamabad Stock Exchange is the construction of 19-storey Islamabad Stock Exchange Towers which is being built as the state of the art financial centre for the capital city of Islamabad. The foundation stone laying ceremony was performed by no less a person than Prime Minister Shaukat Aziz himself during the month of March this year, signifying the importance of the building in the developmental plans of the ISE.

According to the future plans, the building shall house the registered offices of the National Stock Exchange which shall have its head office at Karachi. Besides, many other capital markets related institutions shall also be provided accommodation under the same roof so as to provide a convenient venue to the investors of the region. The ISE plans to enable all the businesses within this building to stay in constant touch with other financial markets of the world through most modern and next generation data communication facilities in the building. Already many banks and other financial institutions have submitted their expressions of interest for suitable accommodation in the building, pointing out to the rising demand for the most prestigious office location in Islamabad.

The contract for construction of phase-1 of ISE tower has been awarded to M/s Rafiq Habib Limited, a renowned name in the construction field in Pakistan, whereas M/s Nespak has been appointed as the consultant for the project. The ISE tower will be a landmark building destined to become a true investment and financial centre of the capital city of Islamabad, Mr. Jan claimed.

Islamabad Stock Exchange is also involved in re-energizing the platform of the South Asian Federation of Exchanges, of which Mr. Abdul Waheed Jan was elected as the Vice Chairman during the recent Annual General Meeting of the organization. The South Asian Federation of Exchanges was established during the year 2000 by the Chittagong Stock Exchange which today has a total membership of 12 stock exchanges from the member countries of the South Asian region. In the last general meeting, the city of Islamabad was chosen as the location for the permanent secretariat for the organization mainly because of the hectic lobbying efforts of the ISE. According to the expansion plans for the organization, SAFE would embark on a new strategic mission so as to turn the dream of cross border stock trading within the region into a reality. For this purpose, the ISE is actively engaged in the setting up of the SAFE's permanent Secretariat at Islamabad, and soon a major conference is planned here so as to formulate new strategic policies for SAFE along with the help of the regulators and the central banks from all over the region.