through stock exchanges
Shares of Habib Bank
Limited, United Bank Limited and National Bank of Pakistan are to be offered for sale
From SHAMIM AHMED
Jul 03 - 09, 2000
While a committee is probing into the recent crisis in the stock market
specially of Karachi and Lahore, the 3 bourses are preparing for handling a much higher
volume of business in the coming months as a result of government decision to proceed with
its massive privatization campaign through the 3 stock exchanges in the country. Shares of
Habib Bank Limited, United Bank Limited and National Bank of Pakistan are to be offered
for sale to the general public through stock market. Those related to the capital market
are expecting roaring business in the stock markets in the coming months both because of
government policy of privatization and the incentive offered in the coming budget to the
investors in the capital markets.
The Finance Minister has announced that the government has decided as a
policy of carryout its privatization programme in future through stock markets. A number
of companies, banks, DFIs and other state enterprises will be listed with stock exchanges
and about ten per cent shares offered to general public through investment in stock
The Board of Directors of the Islamabad Stock Exchange believes that
the privatization process would lead to a speedy growth in the volume and market
capitalisation while 10 per cent tax credit for fresh investment would help accelerate the
economy. The board appreciated that the major proposals forwarded by the bourses had been
incorporated in the budget. Major incentives relating to capital gains and distribution of
minimum dividend under Section 12 (a) of the Income Tax Ordinance 1979 remain in place,
and additionally bonus shares have been exempted from tax for a further period of one
A statement issued said this budget was the corner-stone of the
economic policy of the government for the next three years. It can be expected that the
investment incentives pertaining to equity investment would be continued through this
period. However, an announcement to this effect needs to be made soon to encourage
long-term investment decisions.
The board appreciated the decision to extend the tax exemption on the
conversion of memberships into corporate entities. This would encourage the
professionalisation of the brokerage houses.
The board felt confident that though the support for the enhancement of
the infrastructure of the stock exchanges did not find place in the budget, these issues
would be soon resolved through discussions. The board welcomed the decision to abolish
wealth tax. This measure would lead to capital formation and encourage disclosure of
assets which can be used for productive purposes. However, the board was of tie view that
the wealth tax act should be repealed so as to give confidence that it would not be
revived. The lowering of interest rates, on the National Saving Schemes would help reduce
the lending rates also cut the cost of the capital for productive activities and make
equity investment more competitive and rewarding, which would lead to a revival of the
primary market restoring to the stock exchanges their capability to mobilise resources for
economic growth and development. Now that the government has set a time frame for the
privatization of the major state-owned enterprises in the energy and financial sectors,
the capital market would see a speedy growth in volume and market
In the meanwhile, the government has constituted a four-member
independent committee to proble into the recent stock market crisis and fix responsibility
on persons who led the market to that stage. The step has been taken to stop reccurrence
of such occasional upheavals which shake the investors confidence specially scaring away
the new investors.
Commissioner Securities and Exchange Commission of Pakistan (SECP)
Tariq Iqbal Khan announced that four drastic measures would also be introduced in six
months to streamline the system, ensure responsible trading activities and avoid such
crisis in future.
The committee comprises of Itrat Rizvi of National Development Leasing
Corporation and former SECP nominee in Karachi Stock Exchange (KSE) board Javed Kalia,
incumbent SECP nominee at the KSE, Waqar Malik General Manager of ICI Pakistan Lahore and
Javed Panni SECP Director Securities Market. They would submit the report within 21 days.
The committee would conduct inquiry in both Lahore and Karachi stock
exchanges. On some important steps to avoid such future risks, Tariq said four measures
which are to be introduced sometime in 2001 have been advanced significantly. These
All the stock exchanges have been asked to amend their softwares and
come to the T+3 cycle of the National Clearing and Settlement System (NCSS) within three
months. Minimum capital requirement has been increased from existing Rs.2.5 lacs to Rs 25
lacs and this would have to be complied within three to six months so that there are no
weak brokers in the market.
Capital adequacy ratio for members has been increased by 25 times. This
would also be complied within three to six months. Free exposure to stock market members
and brokers has been stopped forthwith and now they will have no free exposure. The member
will have to deposit 5 per cent of his exposure in the market.
Terms of the reference of the inquiry committee include.
Identify the reasons for the recent stock exchange crisis.
What were the risk management measures in place before and during
the crisis and how effective were these measures. If the same were not effective, what
were the reasons for their ineffectiveness.
Whether the exposure limit monitoring was in place and
consistently applied before and during the crisis.
Whether the software for exposure calculation and enforcement
contained all necessary features to cater to the approved regulatory framework.
Whether the security prescribed was adequate and provided by the
Identify the persons who were responsible for infringement of any
provision of the ordinance/Act, rules, regulations, procedures, identifying the provision
Suggest remedial measures to be taken by the stock exchange and
Any other matter having a bearing or relevant to the crisis.