While commenting on the recent upsurge in the stock
market breaking all previous record the Chairman Securities and Exchange
Commission of Pakistan (SECP) Abdul Rehman Qureshi said that it was real
and sustainable and not a bubble as feared in some circles. The market
will sustain itself as it was largely due to the regulatory measures
initiated by the Commission during the last few years making it
transparent, strengthening its integrity and improving the investor
Talking to the media men in his office in Islamabad
about the performance of the stock market Qureshi said, "Over the
past few years, our stock market has experienced renewed investor
interest." It has attained new heights as is be evident from the
JANUARY TO DECEMBER 2002
the KSE-100 Index rose from a level of 1273 to 2701 i.e. an
increase of 112%. Market capitalization during this period increased by
almost Rs 300 billion, from Rs 296 billion to Rs 595 billion.
JANUARY TO MAY 2003
the KSE-100 Index has risen from 2701 to 3126 i.e. an increase of
16%. Market capitalization has increased from Rs 595 billion to Rs 689
billion representing an increase of Rs 94 billion.
•Average daily turnover has risen from 167 million
shares in 2002 to more than 220 million shares in 2003.
•The actual daily settlement rate has also
increased from a mere 3% in the past years to now 10%, averaging at Rs
This enhanced investor confidence in the market has
largely been due to various far reaching reforms carried out by the SECP.
The SECP has ensured that significant risk management measures are now
in place at the exchanges, the T+3 settlement system has been
implemented and margin requirements strengthened. Governance has been
improved by the introduction of independent professionals on the boards
of exchanges. Investor grievances have been addressed by improved
procedures for the resolution of complaints. Clearing and Settlement has
been radically modernized by setting up the National Clearing and
Settlement System under the National Clearing Company.
In addition the undisclosed market system has been
introduced to minimize front running and market abuse. New products such
as Stock-Futures have been introduced that have opened up new ways for
the investors to hedge and speculate. A code of corporate governance has
been implemented for listed companies that is enhancing the faith of the
shareholders in the corporate sector.
The SECP acting chief said that for the first time,
investors are being provided quarterly accounts as done in the developed
markets. As a result of these far reaching reforms, the stock exchanges
in Pakistan are, by in large, complainant with the 30 IOSCO principles
of Securities Regulation that constitute the International Standards
adopted by the Financial Stability Forum.
These board-based reform initiatives are the key
reason for the sustained growth that the market has witnessed over the
past one year and form a significant milestone in the development of
Pakistan's capital market. The stock exchanges have therefore shown
vision by wholeheartedly accepting and successfully implementing these
reforms and today the Pakistani capital market is ranked as one of the
best performing markets in the world.
The reform agenda continues as we move to setting up
the Over the Counter Market, Phasing-out the Carry Over Market and
building the capacity of the exchanges for effective market
surveillance. "We remain committed to our mission of making our
stock markets fair, efficient, liquid, and transparent so that they can
act as an effective economic agent for the progress of the nation's
economy," he added.
Besides regulating the capital market, SECP also
encourages and facilitates investment. The capital gains arising out
investment in listed securities is currently exempt till June 2004. To
enable investors to make long-term investment decisions, the SECP has
recommended extension in the tax exemption period in pursuance of its
The commission recently amended the Companies
Ordinance to allow firms owned by a single person to be registered as
company. So far, about eight firms have availed themselves of this
provision. As documentation in businesses was also government's policy
and as such companies constitute a considerable chunk of private sector,
the commission has proposed that income tax at the rate of tax
applicable to an individual be applied to "single member
Continuing, Qureshi said that the commission was
encouraging the brokerage firms to convert into corporate brokerages as
part of its efforts to develop the trading in equities along
international standards. The SECP has, therefore, proposed that the
capital gain arising out of such conversion be exempted from tax.
Similarly, the SECP, Chairman stated, exemption from
tax had also been sought for contribution by employer and employee to
Pension Fund Sections. Qureshi, responding to questions, was confident
that the current boom of stock market was sustainable as it was built on
the sound reforms undertaken by the SECP and the macroeconomic stability
achieved by the government.
The SECP has provided full facilities for
establishment of new companies. These include one window operation
facility in each of the Company Registration Office to incorporate a
company within the maximum period of three days.
Consequently, during January-April period of 2003, as
many as 536 new companies were incorporated. This denotes 82 percent
increase over the corresponding period of 1999. In order to obviate any
delay, henceforth the prospectus would be approved at the whole
Commission's level within three days of the receipt of complete offering
The SECP chairman has constituted a committee to
review the Code of Corporate Governance as previously implemented
through listing regulations. The intention, he told newsmen, was to
remove the inconsistencies between the Code of Corporate Governance as
previously implemented through listing regulations and the relevant
corporate laws. The objective was to give full comfort to the companies
and ensure that there is no over-regulation which may have negative
impact on development of the corporate sector.
As part of the continuing reforms, the commission was
about to set up Over the Counter Market and to phase out the Carry Over
Market and build the capacity of the exchanges for effective market
As regards further agenda of SECP, Qureshi said the
commission would strive to enhance retail investor base, deepen the
market by listing of mega issues such as Habib Bank Limited and OGDC,
encourage the brokers to set up offices all over the country and develop
mutual fund and pension fund industry.