SAARC EYEING FOR CREATION OF A COMMON STOCK MARKET GROWTH IN CAPITAL FORMATION WILL REDUCE DEPENDENCE ON BANKS
Apr 06 - 12, 2009
The SAARC Chamber of Commerce and Industry (SCCI) is eyeing for a greater role in South Asian region with an idea to create a common stock market for developing trade and finance integration amongst the member countries.
Tariq Sayeed, a leading business leader from Pakistan, is the current President of SAARC Chamber of Commerce and Industry who has a great passion to activate this important forum with a view to capitalize on the enormous economic potential of the region.
In this respect, SAARC Chamber organized a seminar at the Federation of Pakistan Chamber of Commerce and Industry (FPCCI) where the objective of creating a common stock market in the region was discussed at length.
Tariq Sayeed speaking on the occasion said, "After the inclusion of SAFTA, the gravity and magnitude of the economic relations among the South Asian countries have increased and there is still an estimated trade potential of around $20 billion per annum in South Asia".
However, he remarked that trade relations cannot be promoted without establishing strong politico-cultural associations amongst the nations. Moreover, politico-cultural relations can be strengthened by inter-regional exchange of services including health, education, energy, communications, transportations, and financial services.
The quantum of trade, which since formation of SAARC in 1985 has been less than 5%, does not reflect the seriousness of relations between the peoples of the South Asian countries. However, higher trade in services (health, education, tourism, transportation, and financial services etc.) leads the interaction among the peoples of partner countries. It may lead the trade of merchandizing goods. "I am optimistic that cooperation in services will fill that gap, which several strategies and efforts focusing to promote only trade have not done for last 23 years."
The exchange of financial services provides the cross boarder investment opportunities, which leads the ultimate development of the trade among the nations. The formation of a common stock market in South Asia is the core idea of the exchange of financial services. The theme of the "Common Stock Market in South Asia" is a great concern not only for the financial sector of the region, it also important from the overall socioeconomic development and relations among the countries. A detailed study and policy dialogues on the causes and effects of the integration comprising the prerequisite for integration of the stock markets is required before finalization of the policy.
Tariq Sayeed invited South Asian Federation of Exchanges to join hand in this endeavor so that a well-thought and productive input as a policy guideline could be provided to SAARC Secretariat.
In the age of increasing interdependence among nations because of globalization, capital markets in South Asia can no longer afford to remain isolated from each other or from the rest of the world. Therefore, integration in socio-economic disciplines is necessary to transform the challenges of globalization into opportunities. Global markets improve the efficient allocation of resources and foster access to financing and as a result, the suppliers of capital - institutional investors and individual savers-receive better returns on their investments. Worldwide integration also allows for the rapid transfer of ideas and technology, which are critical ingredients of today's knowledge-based economy.
The WTO's General Agreement on Trade in Services includes financial services in the four modes of supply, which entails regulation of cross-border services. The similar modus operandi has been adopted for services in SAFTA.
The Securities and Exchange Commission of Pakistan has signed a Memorandum of Understanding with the Securities and Exchange Commission of Sri Lanka. The MoU sets forth a statement of intent of the two regulators to establish a framework for mutual assistance and to facilitate the exchange of information between them in order to ensure compliance with their respective securities, futures laws, and regulatory requirements.
The South Asian Federation of Exchanges (SAFE) was formed in January 2000. It is a matter of great honor for us that like SAARC CCI, the Headquarters of SAFE is also located in Pakistan and very recently, its chair has been handed over to Pakistan. "I appreciate the management of SAFE for their endeavors towards the noble idea of creation of common stock market in South Asia. Academic research done at various levels has interpreted that in longer run stock prices in Bangladesh, India and Sri Lanka will affect the stock prices in Pakistan.
However, to make the idea of common stock market a workable mechanism, there is an earnest need for taking some pre-requisite measures so that integration process of stock services is done through an evolutionary process. At the first stage, there is a need for developing common understanding through information sharing and cooperation amongst the governments, regulators, market players, and professional service providers, which should be supported by a strong and an effective physical infrastructure as a necessary requirement to promote the financial linkages between the countries. It will help revive the social and economic relations among the South Asian countries.
This approach requires some basic work for which we have to promote tourism industry, synchronization between the rules and regulations to determine the balanced strategies for development of financial sector and develop cooperation in policies for allocation of invest-able funds on their comparative advantage bases.
The regulatory bodies and planning authorities need to take initiative for building uniform investment and financial environment. Implementation of independent professional management system in the stock exchanges coupled with formation of CDC is required for eliminating the transactions of dubious shares and for increasing the efficiency. There is also a need to establish an automated, uniform and efficient national clearing system for which a settlement system needs to be developed and actively implemented and for which a uniform code of conduct for the brokerage houses and securities firms is required. Similarly accounting standards and practices need to be uniformed and compatible uniformity on the future trading and hedging issues will be required.
There is also a need to understand invisible costs and procedural requirements relating to regulations, which include labor laws, taxation policies and mechanism, courts, crime, law and order, policy uncertainty, financing and investment regulations, corruption, and provision of utilities. The respective governments, therefore, will have to seriously consider some core elements like harmonization and uniformity in the macroeconomic variables like GDP, external trade, foreign direct investment, private investment, interest rate, inflation as well as business environment- including investment protection and cost of doing business.
In addition to that, the availability of required physical infrastructure, financial access, efficiency, and stability including legal rights of investors and lenders, interest rate spread, risk premium, capital adequacy ratio, and prudential regulations will have to be ensured.
To make stock market an efficient vehicle for cooperation, there is also a need to study market capitalization, reliability, and growth of market indexes, market liquidity, trading volume, number of listed securities, number of brokerage houses and security firms, stock markets turnovers, flow of capital including foreign direct investment, foreign private investment, and tariff and taxation policies. Regulations for transfer of dividend income and flow of capital, corporate regulations including takeover activities, corporate governance, and dividend policies will also be required for the desired integration and the development of the common stock market in South Asia.
Earlier Sultan Ahmed Chawla, President FPCCI in his welcome address said until today, despite the cooperation in various areas of the economy among the SAARC member states, there have not been any serious attempts to bring together their stock exchanges.
Therefore, SAARC member states should forge regional alliances and cooperation in view of the effects of globalization on financial markets. Today, we are all here to deliberate cooperation issues and functioning of common market of SAARC member countries. We are all aware of the fact that our cooperation endeavors and the projects we pursue are instrumental towards materializing our true potential. With this belief, we all need to strengthen our cooperation and do our best to implement the projects on SAARC agenda.
The FPCCI President said that stock exchanges are instruments aiming to mobilize financial resources to facilitate their optimal utilization in profitable investment projects. Particularly in the case of the SAARC countries, which are very much in need of funds to finance their development projects, the role of stock exchanges becomes much more important. On the other hand, mainly due to the rapid advances in information and communication technology, the mobility of financial flows around the globe increased enormously. As a result, capital and financial markets in distant locations have found themselves in a severely competitive environment. Stock exchanges of member countries have to respond to these developments by increasing cooperation. In line with these developments, there arises the necessity of increasing cooperation among the stock exchanges of member countries. The member countries should evolve mechanism for cooperation in the area of financial market, which is vital for SAARC economic cooperation in general and for enhancing investment opportunities in particular. Through the creation of common stock market in SAARC member countries, the existing stock exchanges could coordinate and standardize their policies, rules, regulations and procedures, and market techniques. Standardization and harmonization will help regulate stock exchanges of member countries and capital market integration will become a recognizable ground and a force to be reckoned with the international and financial markets.
In the technical session of the seminar, Dr. Ayub Mehar DG Research and Development of FPCCI spoke at length about theoretical background of market efficiency for wealth maximization, role of monetary and fiscal policies and gave an overview of monetary and financial environment in the region.