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Cover Story

An interview with Arif Habib Chairman, KSE

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 default.

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.