THE KSE RELEASES LIST OF COT ELIGIBLE SECURITIES
A large number of scrips are picks of the speculators and responsible for keeping the market highly volatile in the recent past
By SHABBIR H. KAZMI
Nov 10 - 16, 2003
The Securities and Exchange Commission of Pakistan (SECP) has announced the list of 30 listed companies whose shares would be eligible under carry over transactions (COT) commonly known as Badla. All the three stock exchanges operating in the country will have to follow this. The new list will become effective from December 15, 2003. The names were approved by the Karachi Stock Exchange as back as in March. Consequently the trade af other listed companies under Badla system will not be available officially, at least.
The Karachi Stock Exchange (KSE) in its circular KSE/N-5056 dated October 27, 2003 has stated the criteria for selection of these companies. The basis of selection include, minimum paid up capital of Rs 100 million, minimum 10% of total shares registered with the CDS and average monthly turn-over of not less than one million shares. The initial response has been that the SECP's decision will help in protecting the investors from the abuse by the speculators. However, a closer look at the list, shows that brokers fraternity has once again prevailed over the regulators. The names of some of the companies enjoying strong economic fundamentals as well as good track record have not been included in the list. Whereas some of the names in the list are those that have been the picks of speculators — to be honest market manipulators. Yet another indication of strong broker clout is that the new revised list of 30 COT eligible securities will become effective from December 15, 2003.
This gives the broker-cum-investor ample time to offload their contentious load to others. It is also feared that some of the brokers, who also manage mutual funds, may try to park their bad investments into the funds. For the sake of argument, it may be said that the list contains name of companies whose shares are being traded actively. However, some analysts have a contrary view and they say, "The volumes of certain scrips are high only because of market manipulators. Those who do not believe this must look at the price movement of about a dozen companies included in the list. The price movement clearly shows that a few players were trying to make quick buck at the cost of the real investors."
The most glaring example is Chakwal Cement. The company was listed at the local stock exchanges as back as in early nineties as a 100 equity-based company. However, the company has not commenced commercial production as yet. It has only recently cleared the plant and machinery lying at Karachi port, for many years. It may take another couple of years to start commercial production. Another example is inclusion of name of Bosicar, a refinery having very small refining capacity that has commenced commercial production recently. Whereas the names of other three listed refineries in operation for decades and enjoying good performance track record have not been included. Yet another example is TRG, a company belonging to technology sector and listed very recently.
The rackless use of Badla financing led to some of the brokers facing serious settlement problem. Operations of at least two of the brokers had to be suspended and another five managed to settle but not without incurring huge losses. It is being said that one brokerage house lost about Rs 2.5 billion. At least three others incurred losses ranging from Rs 500 million to nearly one billion rupee each. The settlement crisis is said to be the reason the KSE-100 index has lost about 850 points since touching the peak at 4,605 level.
LIST OF COT ELIGIBLE SECURITIES
D. G. KHAN CEMENT
PAKISTAN STATE OIL CO.
SUI NORTHERN GAS PIPELINE
DEWAN SALMAN FIBRE
MAPLE LEAF CEMENT
DEWAN FAROOQUE MOTORS
ENGRO CHEMICAL PAKISTAN
MUSLIM COMMERCIAL BANK
SUI SOUTHERN GAS