"We should not be the recipient of dirty money"



Dec 28 - Jan 05, 2003

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 institutions.

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 observed.

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 market."

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.