The capital market in Pakistan has been undergoing a major restructuring
programme. This include establishment of Securities and Exchange Commission of
Pakistan (SECP), Central Depository Company, automation of trade at three stock
exchanges and credit rating agencies. A number of measures have been taken to
liberalize investment procedures and encourage capital formation through stock
exchanges, enlarge size and depth of capital markets. Still, a lot more has to
be done to ensure transparency and make the market efficient. During this past
week Management Association of Pakistan organized a seminar on 'Capital Market
Reforms' and invited the speakers who have their hands on the pulse of capital
market in Pakistan.
Khalid A. Mirza, Chairman, SECP, was the key note speaker. His main
concern was that due to initiation of process to eliminate Riba from the economy,
flotation of debt instrument was being delayed. Debt instruments are more
attractive for investors due to fixed income nature and have been a major source
of fund for blue chip companies. He was all appreciative of the efforts of
Karachi Stock Exchange in resolving the recent crisis in equities market.
"While the self regulatory system helped in resolving the issue, the stock
exchanges must have independent professional management, there is a need to
rationalize margin and completely abolish the Badla.", said Mirza.
The SECP is taking steps to improve market surveillance and to
strengthen its ability by hiring professionals. He strongly solicited the help
of professional managers, auditors and equities analysts in identifying the
erring companies. He also promised that he himself would ensure that corrective
steps were taken.
While talking about the need for restoration of investors' confidence,
he said, "Speculation is the basis of activity at stock exchanges but
brokers can play a role by not indulging in gambling — the reason for the
recent crisis. Some of the interim measures introduced by the stock exchanges,
i.e. T+3 clearing mode, capital adequacy ratio and revised exposure limits of
brokers have helped in containing market volatility of the market. However,
unless there is enhanced interest of retail investors in the market daily
trading volume will remain confined to a few scrips."
Arif Habib, Chairman of KSE said, though, there were signs of market
abuse by some players, right and timely decisions helped in minimizing the
losses to investors. While talking about the role of foreign fund managers, he
said that they were a catalysts in bringing funds to Pakistan and liberalization
policy allowed the sponsors to establish 100 per cent equity based companies.
Most of the Fund Managers have burnt their fingers in Pakistan. Referring to
Hanif Mossa case, he suggested to the participants to open investor account at
Central Depository. Talking about the improved technology base at KSE, he
informed about the enhanced capability of KATS and plans of KSE to introduce
internet-based trading in the near future.
Dr. Amjad Waheed, Head of Asset Management, National Investment Trust
(NIT) was of the view that fund managers can play an important role in changing
the perception of investors about capital markets. He said that while the risk
was higher in investing in equities, the return was also high. He explained in
detail the performance of NIT as a case study of fund manager.
Referring to recent crisis he said, "While the market
capitalization is around Rs 400 billion, the free float constitute only Rs 80
billion. Therefore, if any group wishes to manipulate the market, it needs only
Rs 8 billion." This is exactly what happened lately. The manipulators were
able to raise the desired amount though margin financing and drove the market
the way they liked.
Nessar Ahmed, President and CEO, Crescent Investment Bank said, "We
tend to highlight the negatives but forget the positives. This is exactly what
has happened to the capital market in Pakistan. He also addressed the issue of
insiders trading. He expressed his concern about a few listing on stock exchange
in last couple of years, lack of opportunities for quality investment and
protection for investors. The existing macro economic situation and external
debt crisis further dampen the investment climate, particularly for the foreign
Earlier Moin Fudda, President of the Association introduced the topic
and the speakers to the participants. He assured the SECP chairman of the
assistance from the Association, which is also represented on the Board of Directors
of Karachi Stock Exchange.