July 14 - 20, 2008

At times when stock exchanges pass through consistent a spell of bearish sentiments and confront with impending danger of nosedived indices every now and then the importance of fortified regulatory framework extends to a greater level and the need of sagacious check over capital market misconduct becomes high.

More importantly the borderless portfolio investments amplify the necessity of cosmopolitan guiding principles to regulate complexities involved in multi-dimensional inflows. The support forwarded by such regulations during financial crisis or instable capital market is deft enough to adapt to diversification in securities trading without rendering loss to the sanctity of host bourse.

For last few years capital market of Pakistan has been attracting multitude of foreign portfolio investments in securities and has market capitalization exponentially grown. The inflow of cross border capital increased to recently recede back owing to fallible volatility controlling structure of country's capital market that seems to have been avoiding blessings of interoperable stock trading.

Basically interoperability of stock trading or synergy in operations of different nations' capital markets are influenced to successful outcomes of regional or global economic blocks, whose constitution facilitates occurrence of preferential trade transactions among member countries and provides agreeable legislations and regulations to undertake inter-national trade.

Regional block than global one is considered to be more effective due to geographical proximity of the members. Compounded with an analogy, European Union has its own centralized system of clearing and settling securities traded in exchanges all across the European block. Through centralization for undertaking one of the complex shares trading tasks EU exercises complete unanimity on fragmented trades.

Because of the benefits instated in cooperative trades especially for securities trading the integrated regional capital markets can be pragmatic progress forward to insulate capital markets from financial malfunctions. Borderless regulator can share public information indiscriminately with local and foreign counterparts. Also international accounting standards could be instrumental in cross border companies listing.

SAARC integrated capital markets have been an appreciable concept in this regard. But realization of this concept into absolutely unified regulations for cross border securities trading in South Asia is unseen. While the centralized system working towards common standards of listing, trading, and clearing and settlement can help pre-empt financial crisis and regulatory failures, it will undergo several adjustments prior to be fully enforced in the region.

For the time being only introductory efforts are taking place region wise in the direction towards fostering synergy. "Centralized clearing and settlement will only be possible in advance stage," said Muhammad Lukman, CEO National Clearing Company of Pakistan. At present no material things have been executed to set up regional hub for capital markets. One main hurdle, he told, is related to currency difference of SAARC member countries. EU's centralized clearing and settlement of securities is workable due to its unified currency.

In addition, there are many other problems in integrating SAARC capital markets fully, he stressed, saying more technical and regulatory accords and pacts have to be signed in order to make this a reality. Mutual assistance among central banks is also very important in this regard. "I don't know about extent of cooperation between regional central banks," he remarked. He said for the time being, "however, we are sharing information with member countries". Especially with Bangladesh that wanted to establish its clearing and settlement base NCC has shared its expertise. Similarly, Maldives stock exchange has accessed required regulatory framework of Pakistan's capital market. "Concurrently we are too getting info to strengthen our derivative markets from SAARC member countries, which have relatively liquefied derivative markets," he said.

It is generally observed that short term securities markets are more susceptible to volatilities, political uncertainty, and undulated economic progress. That is why cash strapped governments promote the long term debt markets. Rather in recent move government raised 2% rate of return on national saving certificates. Notably this move is considered to revive moribund domestic debt market and bring shift in income saving priorities.


The member countries of SAARC are presently exchanging information and expertises of each other to build up their capital markets. For jointly designing a framework to identify and prevent misconduct in capital markets security and exchange commissions of Pakistan and Sri Lanka signed an accord while Pakistan's three stock exchanges separately have signed agreements with Colombo and Chittagong stock exchanges.

Despite mutual law facilitations are essential to bring synergy bottlenecks in finding point of agreement have distanced regionally compatible exchange legislations. However, for harmonising financial legislations, and monetary and exchange cooperation SAARC Finance was instituted to amalgamate efforts of signatories' central banks. The weakness of this initiative was citied with an example that no representation from stock markets regulators was included during institution. So far only South Asian Federation of Stock Exchanges has presented few exemplary works in regional harmonization, transfer of technology, cross border listing and securities trading, and human resource development. SAFE comprises of twenty member entities from eight South Asian countries that include Bombay Stock Exchange, Chittagong Stock Exchange, Colombo Stock Exchange, Dhaka Stock Exchange, Islamabad Stock Exchange, Karachi Stock Exchange, Maldives Stock Exchange (Pvt) Ltd, National Stock Exchange of India, Nepal Stock Exchange, the Stock Exchange of Mauritius Limited, and the Royal Securities Exchange of Bhutan.

In order to devise congruent regulations that curb financial crisis and encourage cooperation integration of capital markets is important. But can regional neutral regulator guarantee reinvestment of stock capital in economy?