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  FINANCE
 
 
 

 

 

EXCLUSIVE WITH DR TARIQ HASAN

SCEP to launch task force on financial crimes shortly

From KHALID BUTT, Lahore
Oct 24 - 30, 2005

Chairman Securities and Exchange Commission of Pakistan (SECP) Dr Tariq Hasan has said that March-like crisis at stock market would not be repeated again.

He said that the SECP has put in place a number of measures to stabilise the stock market, eliminate market abuse and give protection to investors, especially small ones.

In an interview, the SECP Chairman said that the stock market is gradually inching forward due to better corporate profitability, continued strong growth in the national economy and measures taken by the SECP to stabilise market. He also said the commission is shortly initiating a full-fledged move against white-collar crimes at capital market.

Q: Which way the stock market is moving these days?

A: Stock market is showing stability steadily these days. The corporate profitability, continued impressive growth in the country's economy and protection measures introduced by SECP have ensured a gradual but steady growth in the stock market.

Q: Will SECP ask NAB to investigate stock market crash?

A: If you talk about March crisis at stock market, it was hardly a crash. The entire market remained open unlike the situation we had in 2001-02 when the stock market trading had to be suspended for a few days amid default by some people. In contrast this time there was Rs 13 billion settlement in one day which prevented default and kept smooth market activity. So I think it could not be called a crash. In addition, we also took decisions to ensure that stability in the market is maintained. There was certainly a downturn in market and a lot of investors suffered. We immediately set up a complaint cell which received 150 complaints of which 50 could not be authenticated, 50 decided, while 40 complaints are being attended by the SECP. NAB had nothing to do with this issue. NAB had its own jurisdiction and law. NAB is an accountability bureau and it is not just a financial crime wing. NAB has its own mandate and if any issue falls into it ambit, NAB officials should investigate that.

Q: NAB investigated the illegal forex brokerages issue so could this matter also be referred to the Bureau.

A: The issue of unlawful forex brokerage companies was in the purview of the NAB as a result the Bureau involved itself in it. But the stock market crisis did not fall in the jurisdiction of the NAB as the situation was entirely different. Neither SECP had asked the NAB to take up stock market case nor the Bureau had evinced any interest in it, because a lengthy forensic research and investigation is required to get solid evidence of stock market abuse.

Q: There are speculations that SECP is taking action against brokers involved in the crisis?

A: SECP will continue to take action against the brokers that violate law and found guilty of market abuse. It is the prime duty of the SECP to protect the interests of investors and eliminate abuses from the stock market.

Q: Speculations continue to hurt stock market. How SECP is tackling this task?

A: It is extremely difficult to trace the origin of the speculations. It is a common phenomenon all over the world. SECP and stock markets are educating investors about risk factors, including speculative trading.

Q: There are reports that the margin financing is not available at LSE?

A: I have heard about it. I really don't understand as to who is saying that and why because whenever we take up this issue with the State Bank officials, they say that the banks are providing margin financing to the brokerages. Various banks have committed 18 billion rupees for margin financing and if it is not being picked by the brokers on one or the other pretexts it does not mean the financing is not available. We have introduced very liberal margin financing scheme and the SBP had also framed margin financing rules and regulations for banks.

Q: Badla is not available easily at stock market due to capping of Continued Finance System (CFS)?

A: Unless we phase out badla, other more documented instruments of financing would not flourish in the market. When we talk about the elimination of undocumented mode of financing, the people must be provided with other effective sources of financing and naturally the documented mode of financing seems more stringent source of financing which requires due diligence of financee, which is why that brings stability in the market. So capping is more important because we have to phase it out. Otherwise, we will have the same situation in which we were in March this year. Average badla volume which was 22-23 billion rupees in the last two to three years increased to 40 billion. So to say that is the appetite of the market today. I think that is not sufficient appetite. We would have to make sure that the March-like scenario should not erupt again. We also want to make sure that we have a stable market and we want to make sure that we protect the small investors.

Give us the specific examples where the margin financing is not available and what are the issues hampering it. If it is a real problem we will resolve it, and if it is a general impression that the money is not available it does not seem true.

Q: LSE brokers have filed applications for margin financing but the facility is still not available?

A: Margin financing rules and regulations had been finalised a couple of years ago and this excuse could not be used for non-availability of financing.

In fact, the issue of double margin was raised by the brokers which was resolved by the SECP. A fact should also be kept in mind that we cannot dictate the banks to lend on non-commercial terms to brokers. If the brokers community wishes to get loans on easy terms and be the only beneficiary, then I feel there is a misalignment in the thinking of what the banks and the brokers want. Whatever is agreed between the brokers and banks, it should be done on commercial terms and the brokers must not expect from the SECP to use its influence to force the banks to provide financing at the terms and conditions, suiting the brokers.

Q: Is Rs 18 billion margin financing meant for Lahore Stock Exchange only?

A: This amount of margin financing, committed by the banks, is meant for all the three stock exchanges and the brokers are supposed to avail this financing facility.

Q: What about educating investors?

A: We have been holding road-shows with the CDC and stock exchanges regularly which are aimed at creating awareness among the investors and warning them against risk factors. It has been our endeavour to promote investment and protect investors at the same time.

Q: What measures SECP putting in place to eliminate market abuses?

A: Securities and Exchange Commission of Pakistan would soon initiate a comprehensive drive to curb white-collar crimes from the capital markets in Pakistan. The in-house capacity-building process of the Financial Crimes Task Force of the SECP would be ready shortly and it would focus exclusively on the elimination of white-collar crimes, including the stock market abuses. Our team is almost ready to combat financial crimes and we will soon announce its launching.

Explaining the nature of white-collar crimes in capital markets, he said that some illegal brokerage houses and forex companies have been detected by the SECP. Dr Tariq said that the force of the SECP would keep a strict vigilance on the capital market, monitor it regularly and prevent the clandestine business of illegal brokerages and forex companies. Regarding scope of the functioning of the Financial Crimes Task Force of the SECP, he said that initially it would focus only on white-collar financial crimes, taking place in the country's capital market.

If the government allowed and amended the law, the scope of the task force could be further extended to financial crimes taking place in other areas, said the SECP Chairman.

He also disclosed that the SECP was taking action against the brokers and investors involved in recent stock market crisis.

He said that the SECP would continue to investigate the stock market abuses. Whenever we will receive any complaint, the SECP will initiate a probe to find out the truth with the objective to discourage capital market abuses and to protect investors.

Q: What is progress on merger and demutualisation of bourses?

A: The commission has received reports of merger of LSE, ISE and demutualisation of KSE. The bourses are expected to submit their business plans and schedule of preparation next month. The LSE and ISE have shown interest in their merger while KSE has shown interest in demutualisation.

Q: What is the deadline for setting up National Stock Exchange?

A: Lahore and Islamabad stock exchanges have shown interest in establishing a National Stock Exchange through their merger. The creation of a national level bourse would depend totally on the business plans and recommendations of the bourses and the SECP had nothing to do with it.

 
 

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