* Last week there was a dummy run whereby the KSE asked
brokers to conduct simulated settlement of trades on the T+3 basis. The exercise
created even more confusion with many players throwing up their hands in despair
and saying, "We haven't a clue how this works."
* We fail to understand why a much more intensive and
prolonged practice period, trouble shooting session and testing was not done.
* Despite such a monumental change, the commensurate
awareness generation exercise, preparation and system testing has simply not
been there. Has any one seen a single advertisement anywhere by any of our stock
exchanges about what T+3 is, what are its benefits, how it operates, what it
means for common investors? The 'club' mentality continues to dominate the
working of our exchanges.
* Today the domestic stock market and most emerging markets
as an 'asset-class' are not too attractive for global investors. But this is not
a static situation and it will change, indeed it is changing.
* To make the efforts to move towards T+3 system is in
everyone's interest. It is a win-win situation. But of course it would require
the local exchanges and their members to wake-up from their slumber and face the
changing reality in the world.
Efforts are being made to improve transparency and
efficiency of equities market in the country. The 'May Crisis' and its
consequences also demanded improvement in self-regulatory mechanism
and a proactive role of regulators. Since then various measures have
been introduced to check the conduct of brokers to avoid such incident
in future. One of the recent strides is introduction of T+3 system of
The decision to introduce T+3 system was initially
considered a threat by many players. However, these fears are mainly
due to lack of understanding of the system. As such brokers and
investors have been used to 'spot' trading which is immediate
settlement. Since the spot trading is usually confined to a few scrips,
brokers and investors usually abstain from trading in these scrips.
However, the resistance against introduction of a new settlement
procedure may be natural but uncalled for. Therefore, T+3 system
should not be considered an impediment. The new system may weed out
those who want to make money without investing a rupee. The entry of
real investors will not only broaden the share holding base in the
country but will also reduce market volatility. Some brokers are of
the view that introduction of T+3 system would put an end to
Therefore, first of all it is necessary to
distinguish between speculation and market manipulation. There is a
very strong feeling, among the investors, that some of the brokers
have attained the power to manipulate the market. This was confirmed
by the 'May Crisis'. Other factors pushing the investors away from
equities market included: insiders trading and blank selling. It is
true that speculation is the driving force for equities market.
However, when a few attain the power to manipulate the market, it is a
very dangerous sign because bulk of the daily trading volume is
confined to less than half a dozen companies. Etrat Rizvi's Report on
'May Crisis' also addressed this issue and suggested to the Securities
and Exchange Commission of Pakistan (SECP) to ensure greater
transparency and efficiency in market operation.
Though, ultimately all the listed companies will
come under the T+3 system, only two companies have been selected in
the first phase. These are Ibrahim Fibres and Telecard. Some of the
analysts even question this selection. They say, "The T+3 system
should have been decided for companies like PTCL, HUBCO and PSO or
companies falling in the category of volume leaders. The two selected
companies neither come under this category nor have been pick of the
market manipulators. The market is still wide open and the trading
pattern in the pre and post T+3 system will be of no consequence.
Etrat Rizvi Report has questioned the way some of
the scrips were classified spot in the past. Some analysts support the
logic of the committee but the then Chairman of Karachi Stock Exchange
did not appreciated the spirit. Since most of the Directors on the
stock exchange were the players and the beneficiary of the system,
they also did not appreciate some of the proposals made in the Report.
Since the members of stock exchange were willing to implement
self-regulatory mechanism beyond a certain level, the SECP has to
assert its authority.
Saying this much, it is also a fact that the watch
dogs are sleeping most of the time. They only wake up if they have
their own reasons but they mostly respond when the crisis deepens.
Assuming that members of stock exchanges will implement a self
regulatory mechanism which can curb their undesirable activities
completely is only a wishful thinking. The SECP has to be more
vigilant than its past record.