While briefing the newsmen in his office Islamabad on
Friday, the Chairman Securities and Exchange Commission of Pakistan Mr.
Khalid Mirza disclosed that a new unit to combat money laundering was
being set up at SECP with the technical assistance of the World Bank to
check inflow of dirty money in stocks and non-banking financial
Analyst are unanimous that besides positive political
and economic developments, a tight and effective regulatory system set
in by the SECP had improved investors confidence and turned Pakistani
stock market as one of the best performing in the world.
The Chairman said that effectiveness of the
regulatory system put in place by the SECP is amply proved from the
improved investor's confidence and vast expansion in investment. The
increase of Rs.332 billion in market capitalisation in a short period of
5 months was a healthy sign and SECP will take all possible measures to
maintain investors confidence and attract issuers to the market. He
explained that Pakistan market was growing as the settled stock figured
from 10 to 15 of the total now as against 1 to 3 previously. He said
that the surge in the market was sustainable. "It is not largely
based on foreign investment and secondly from a regulator's point of
view it does not entail any systematic risk. Last time, when the market
went up, it saw many systemic risks increasing its vulnerability,"
he said. It does not have vulnerability due to covering of systemic
risks having no bank selling, it have now circuit breakers and margin
requirements are high. When market goes up it churns, which is a
short-term bullish trends. From this point of view it is not a bubble
and is going up in the presence of a good regulatory framework. It also
shows a greater confidence of investors in the market.
He said he is not scared about any bubble from the
point of view of a regulator. The market still has a price-earning
ratio, which makes it attractive as compared to the prevailing make-up
in the market. Now his concern is that new issues are not coming. The
confidence of issuers requires more attention than the confidence of
investors. These issues would come in a chain. At this stage macro
fundamentals are good, and only worrisome situation is that the
investment in not coming in manufacturing sector, the SECP chief added.
He said Pakistan's stock market has been termed one
of the best performing market in the world by the international media.
This is primarily due to the rules issued by the SECP for the protection
of investors, particularly small investors, curb insider trading at the
stock exchanges, introduce risk management measures ensuring
transparency in corporate dealings, thus bringing Pakistan's market up
to international standards. As such, there has been no systematic crisis
in the stock market for some time, he added.
Khalid Mirza further said that the SECP had developed
a well thought-out strategy for the development of capital market in
Pakistan. He recalled that the initial focus of the reforms was towards
improving the market integrity and the Commission took several steps to
improve the price discovery process and settlement system. Having
satisfactorily addressed this issues, the SECP then turned its focus on
the corporate sector so as to build confidence in the issuers of
securities, he added.
The SECP Chairman said the Commission is now
broadening the net and focussing on removing any possible "bad
smell" from the market and improving its image on a local as well
as international front. In this regard, the Commission is making efforts
to develop institutional structure for combating financial crimes and
money laundering, he added.
Explaining the proposal new measures to check money
laundering SECP Chairman said that the project will focus on capacity
building of the Commission, carrying out studies on this subject,
networking with other markets and research and publications. He further
elaborated that initially, the unit will review all the rules,
regulations, notifications etc, currently in place, for the country's
capital market and non-banking financial sector, before taking any
correcting measures. "We will see whether there are any loopholes
or weaknesses in the current system, which can be addressed, as we want
a clear, fair and transparent market instead of a dirty one," he
Khalid Mirza stressed that while going through this
process, we will make the efforts that our market performs without any
hindrance and confidence of investors is also not affected. "There
has to be as fine balance between the measures and market activity
without causing any obstruction to our market. Such steps are also being
taken in the markets of the US and the West" he said adding,
"We should not be the recipient of dirty money," we have to
stop such things if any, in a way that our investment is also not
affected and we have the knowledge or source of invested money in the
Khalid Mirza said a stock broker should have some
minimum queries for his customer like: Who is he, From where he has come
and similarly the source of money he is investing etc., adding. there
should be a little bit of due diligence in this regard. He however, made
it clear that these are the issues, which are not at present in clear
form and as to how it would be dealt, out the commission has started
working on this issues.