CAPITAL MARKET REFORMS
Efforts to make the market efficient and transparent.
By SHABBIR H.. KAZMI
Aug 14 - 20, 2000
The capital market in Pakistan has been undergoing a major restructuring programme. This include establishment of Securities and Exchange Commission of Pakistan (SECP), Central Depository Company, automation of trade at three stock exchanges and credit rating agencies. A number of measures have been taken to liberalize investment procedures and encourage capital formation through stock exchanges, enlarge size and depth of capital markets. Still, a lot more has to be done to ensure transparency and make the market efficient. During this past week Management Association of Pakistan organized a seminar on 'Capital Market Reforms' and invited the speakers who have their hands on the pulse of capital market in Pakistan.
Khalid A. Mirza, Chairman, SECP, was the key note speaker. His main concern was that due to initiation of process to eliminate Riba from the economy, flotation of debt instrument was being delayed. Debt instruments are more attractive for investors due to fixed income nature and have been a major source of fund for blue chip companies. He was all appreciative of the efforts of Karachi Stock Exchange in resolving the recent crisis in equities market. "While the self regulatory system helped in resolving the issue, the stock exchanges must have independent professional management, there is a need to rationalize margin and completely abolish the Badla.", said Mirza.
The SECP is taking steps to improve market surveillance and to strengthen its ability by hiring professionals. He strongly solicited the help of professional managers, auditors and equities analysts in identifying the erring companies. He also promised that he himself would ensure that corrective steps were taken.
While talking about the need for restoration of investors' confidence, he said, "Speculation is the basis of activity at stock exchanges but brokers can play a role by not indulging in gambling — the reason for the recent crisis. Some of the interim measures introduced by the stock exchanges, i.e. T+3 clearing mode, capital adequacy ratio and revised exposure limits of brokers have helped in containing market volatility of the market. However, unless there is enhanced interest of retail investors in the market daily trading volume will remain confined to a few scrips."
Arif Habib, Chairman of KSE said, though, there were signs of market abuse by some players, right and timely decisions helped in minimizing the losses to investors. While talking about the role of foreign fund managers, he said that they were a catalysts in bringing funds to Pakistan and liberalization policy allowed the sponsors to establish 100 per cent equity based companies. Most of the Fund Managers have burnt their fingers in Pakistan. Referring to Hanif Mossa case, he suggested to the participants to open investor account at Central Depository. Talking about the improved technology base at KSE, he informed about the enhanced capability of KATS and plans of KSE to introduce internet-based trading in the near future.
Dr. Amjad Waheed, Head of Asset Management, National Investment Trust (NIT) was of the view that fund managers can play an important role in changing the perception of investors about capital markets. He said that while the risk was higher in investing in equities, the return was also high. He explained in detail the performance of NIT as a case study of fund manager.
Referring to recent crisis he said, "While the market capitalization is around Rs 400 billion, the free float constitute only Rs 80 billion. Therefore, if any group wishes to manipulate the market, it needs only Rs 8 billion." This is exactly what happened lately. The manipulators were able to raise the desired amount though margin financing and drove the market the way they liked.
Nessar Ahmed, President and CEO, Crescent Investment Bank said, "We tend to highlight the negatives but forget the positives. This is exactly what has happened to the capital market in Pakistan. He also addressed the issue of insiders trading. He expressed his concern about a few listing on stock exchange in last couple of years, lack of opportunities for quality investment and protection for investors. The existing macro economic situation and external debt crisis further dampen the investment climate, particularly for the foreign investors.
Earlier Moin Fudda, President of the Association introduced the topic and the speakers to the participants. He assured the SECP chairman of the assistance from the Association, which is also represented on the Board of Directors of Karachi Stock Exchange.