An interview with
Arif Habib Chairman, KSE
By SHABBIR H. KAZMI
Jan 24 - 30, 2000
The existing Karachi Automated Transaction System (KATS) has been
upgraded and tested to handle the enhanced trading volume. Beside this, efforts are also
being made to consolidate existing projects to improve transparency, delivery against
payment and national clearing system. Attaining improved governance in listed companies is
also on top priority. These were the expressions of Arif Habib, Chairman, Karachi Stock
Exchange (KSE) while talking to PAGE.
"KATS was introduced in 1997 when the daily deal averaged around
7,000 and the system was capable of handling 40,000 transitions. However, with the
introduction of Central Depository System the daily trading volume touched new heights and
lately the number of deals exceeded 55,000. The system was overloaded and bound to develop
some malfunctioning. However, the new system, being tested, is capable of handling 100,000
deals per day. This will also help in e-trade of securities," said Arif Habib
According to him before examining the post nuclear performance of the
market, it is necessary to go back a little further to October 1997. He said, "At
that time KSE-100 was around 2000 points and market capitalization was more than Rs 615
billion. However, some external and internal factors caused the decline. These were Asian
crisis, political uncertainty in the country, proceedings against IPPs, nuclear tests,
imposition of economic sanctions and freezing of foreign currency accounts. The index
touched the lowest in July 1998 and market capitalization came down to Rs 234 billion.
Dollar volatility and other factors resulted in selling of securities worth US$ 700
million by foreign investors."
However, some internal factors played a key role in early and
substantial recovery. These were commencement of Central Depository Company, active
participation of financial institutions in the capital market, reduced GoP borrowing,
reduction of interest rates by the banks and National Savings Schemes. After the
resumption of power by the current economic managers efforts were also made to put the
economy back on track. All these factors and rescheduling of Pakistan's external debts
gradually had a positive impact on sentiments. The market is expected to further
consolidate in the near future.
Another factor contributing to recovery of capital market is lower 'Badla'
rate. While the reduction of this rate may be linked with overall liquidity of the market,
the other reason is active participation of financial institutions in equities market. At
present they are not only active participants in trading but also lend soft-term loans
against securities. Alongwith this, the stringent regulatory system at the Karachi Stock
Exchange, governing the activities of brokerage house, has minimized the chances of
According to the newly elected chairman, "Efforts are being made
to improve the corporate governance both by the stock exchanges and Securities and
Exchange Commission of Pakistan (SECP)." While KSE places companies on defaulters
list, SECP has been making efforts to strict adherence to lending limits to associate
companies. Initially 185 companies were placed on defaulters list. Most of the companies
fulfil the requirements. The number of companies declaring dividend was 319 for the year
1998-99. Now the efforts are to delist the defaulting companies and start liquidation
proceeding if a company is delisted to protect the interest of small shareholders.
To make the market more transparent and efficient, efforts are being
made to introduce National Clearing System. Taking the advantage of CDC technology base,
the plan is to allow the CDC to undertake this activity. This will help in controlling the
volatility in the capital market and prompt settlement. At the same time more stringent
code of conduct has been introduced for brokers.
To conclude, Arif Habib said, "Although the stock exchanges in
Pakistan do not undertake any specific marketing programmes for attracting small
investors, the individual members disseminate the most current information to both print
and electronic media." This helps in keeping the investors aware of all the
activities. The objective is to make the information available to all and then let them
make their own decisions. There are efforts to curb trading by 'insiders'.
To ensure additional resource mobilization through stock exchanges, it
has been suggested to the government to off-load shares of state enterprises. We are
actively pursuing this proposal and keenly awaiting the GoP decision.