AN EXCLUSIVE INTERVIEW WITH IMTIAZ HAIDER, MANAGING DIRECTOR ISLAMABAD STOCK EXCHANGE
Research Analyst, PAGE
Updated Aug 6, 2011
Mr. Imtiaz Haider joined Islamabad Stock Exchange (ISE) as Managing Director/Chief Executive Officer in February 2010. He has to his credit more than 20 years experience in finance, business management, corporate governance, academia and marketing.
Before joining ISE, Mr. Haider was group head, corporate finance, compliance, and business development in a leading business group.
Mr. Haider has also served as Executive Director in the Securities Market Division at the Securities Exchange Commission of Pakistan (SECP) where he was responsible for operations of securities markets of Pakistan. He has also served as head of corporate governance as well as zonal manager of National Investment Trust Limited. He holds a bachelor degree in Law and a master degree in Business Administration.
The comprehensive answers given by MD ISE to the probing questions asked by this correspondent amply prove that he has sufficient knowledge in his subject and his answers have provided enough food for thought for the concerned people. Following are the questions asked and the answers given by Imtiaz Haider.
PAGE: WHAT ARE YOUR COMMENTS ON THE PRESENT PERFORMANCE OF THE STOCK EXCHANGES IN THE COUNTRY IN GENERAL AND ISE IN PARTICULAR?
IMTIAZ HAIDER: During the last four years, the country underwent many economic, political and social challenges and towards the later part of the last year, analysts expected gradual recovery of economy, but macroeconomic issues like mounting debt servicing, stagnant tax to GDP ratio, rising expenditure on security, subsidies and acute power shortage in addition to natural disaster in the form of floods wielded adverse impact on the economy. Therefore, country is expecting another challenging year during 2011-12 on economic front whereas political instability, worsening law and order situation, energy crisis and negative sentiments for Pakistan would complicate the situation and finance managers need to exert more efforts to come out of the anticipated hard times successfully.
Inflow of foreign investments, improved risk perception, and encouraging financial results of the corporate sector are the major attributes of the securities market in Pakistan at present and need to be projected as positive side of the picture.
The securities market of Pakistan has shown signs of resilience despite many unfavorable odds in the recent past. Our stock market is FELT i.e. fair, efficient, liquid, and transparent and our market is comparable to any market in the region and it enjoys full confidence of the investors, although for the time being the investors are restraining themselves for a while and waiting buoyancy and volumes in the market.
Market may see both sides, positive or negative, but the most factor that concerns me is the gradual decreasing market activity/volume. At times, the market witnessed some bullish trends but the volumes could not show the matching growth that means a major segment of investors keep themselves away from the market activity. The main reason contributing the lack of interest amongst the investors is capital gains tax (CGT) for which the timing was quite odd and mechanism for collection of CGT added fuel to the fire.
The procedure adopted for the CGT regime is least amenable and quite cumbersome. I consider, if issues relating to collection of CGT and applicability are addressed, the same would have positive effect on the market.
The ISE is susceptible to the adverse chain reactions in the economy and being the youngest of the three stock exchanges of Pakistan, is the most sufferers in this scenario. The trading volume at ISE has eroded significantly. The inflow of foreign investment in this part of the country which is most affected due to war on terror is minimal if not none. The management of the exchange is making efforts and in this regard, some out of box solutions are being introduced for regaining its trading share.
PAGE: DESPITE UNSATISFACTORY LAW AND ORDER SITUATION AND DEPRESSING ECONOMY AND INVESTMENT CLIMATE DURING THE LAST FEW YEARS, KSE HAS ACHIEVED AND ALMOST MAINTAINED THE HIGHEST LEVEL OF OVER 12000 POINTS. HOW DO YOU SEE THAT?
IMTIAZ HAIDER: The KSE is a role model for the entire securities market in Pakistan and despite unfavorable conditions, it has maintained its highest standards in all aspects. The investment climate has remained un-conducive for the past three years yet the KSE has shown splendid performance. The major reason for this sustained growth is healthy financial results of the corporate sector and inflow of foreign investments. However, I believe that the market can improve significantly provided some confidence building measures are initiated at the government level and regulators of the capital market make the regulatory requirements for brokers less stringent.
PAGE: ARE YOU SATISFIED WITH THE LISTING LEVEL OF THE THREE EXCHANGES? CAN IT BE IMPROVED FURTHER?
IMTIAZ HAIDER: The current listing level of the three stock exchanges is highly disappointing and there is a room for massive growth. The magnitude of 640 companies that too including 250 sick and defaulting units can be termed as anything but impressive. On the other hand, if you compare it with the total corporate units of around 60,000, the listed sector appears to be quite meager. In India, the total listed companies are over 5,000 while in US there are more than 8,000 listed companies. The corporate culture has contributed to the growth of all major economies such as US, Japan, Canada, India, England, and across Europe for which their stock exchanges played due role. Unfortunately, the Pakistan is far behind in this regard. Successive governments have always supported the capital markets to maximize the potential of securities market in Pakistan but traditionally for all projects financings, our sponsors rely on the banking channels. I think the lack of awareness and stock market education have been the main reasons for this subdued performance and there is a much need for all stakeholders to work closely and make focused efforts to play effective role for the development of the economy in general and stock market in particular. I would also like to mention that the stock exchanges must initiate proactive role and market themselves for the private sector entrepreneurs to provide avenues for fund raisings. Besides, I also urge upon the government to provide lucrative tax incentives to the listed sector so that private entrepreneurs must be encouraged to go public.
PAGE: HOW DO YOU FEEL ABOUT THE PROPOSED CAPITAL GAINS TAX? DO YOU THINK THAT IT WOULD ADVERSELY AFFECT THE MARKET?
IMTIAZ HAIDER: The Capital Gains Tax (CGT) has been levied by the government after great deal of efforts but unfortunately the securities market atmosphere was least conducive for that in view of historic crisis of late 2008. On the other hand, the modalities for collection of the tax are unfortunately ill-conceived and quite tedious. The very impact of this levy has resulted into the erosion of trade volumes from our markets and I am afraid the tax authorities would hardly get its targeted revenues from this levy. This was the reason, the stock exchanges in Pakistan had proposed to amend the CGT regime and till this time nothing is lost, if all stakeholders sit together and sort out the issues in CGT, the negative can be turned into positive outcome.
PAGE: ON WHAT GROUND A TAX ON THE INCOME OF STOCK DEALERS CAN BE OPPOSED SPECIALLY UNDER PRESENT ECONOMIC CONDITIONS WHEN GOVERNMENT BADLY NEEDS MORE REVENUES TO MEET ITS EXPENSES?
IMTIAZ HAIDER: It is my earnest opinion that tax at source is the best mechanism to give handsome revenues to the national exchequer. The stock brokers/dealers have contributed massive revenues in the form of capital value tax (CVT) and other taxes and if the same regime is followed coupled with certain incentives for the securities markets, the brokers community can still contribute revenues over Rs20 billion which would go on increasing gradually. The substitution of CVT with CGT at the stage of applicability of CVT, I believe, has benefits as investors and brokers have full acquaintance with the system, documentation requirement is achieved, collection (being at source) will increase and interference by tax authorities into the capital markets wane.
PAGE: THERE IS AN IMPRESSION IN THE CONCERNED CIRCLES THAT THE STOCK EXCHANGES ARE OVERREGULATED. WHAT IS YOUR OPINION?
IMTIAZ HAIDER: This is just an impression but have no truth in reality. The apex regulator is striving to make things happen at the exchanges. We must understand that the regulator takes into account the business side as well as the regulatory requirements and hence sometimes an impression is created that the regulator micromanage. The situation is altogether different. The regulators adopt a comprehensive consultative approach towards bringing new changes in regulatory regime and at the same time exchanges are taken on board while introducing new reforms in the market. At the time of introducing new products, and even at improving and activating an existing market, the regulator's approach is commendable as the SECP and exchanges undergo a series of brainstorming sessions and negotiations to make the newly introduced ideas more acceptable by all the stakeholders. Nowadays, the leadership at SECP is accessible, available, and willing to accept arguments that has reasoning into it and is in the interest of the market. The stock exchanges enjoy complete autonomy for their decision-makings.
PAGE: CAN YOU EXPLAIN THE IDEA OF DEMUTUALIZATION FOR THE NONPROFESSIONALS AND THE PRESENT STAGE OF ITS IMPLEMENTATIONS?
IMTIAZ HAIDER: The demutualization of stock exchanges is relevantly a new phenomenon in the economic world with a history of about two decades, meaning that till the early 1990s. Most of world stock exchanges were "not for profit", mutual organizations owned by their members. Demutualization coupled with corporatization is the process through which a member-owned company (exchange) becomes shareholder-owned company. This process also involves the broad basing the shareholding of the company from members to financial institutions to the public through the course of initial public offering (IPO). The corporatization, which is also a simultaneous and integral process of the demutualization, would transform the present guarantee limited non-share capital company to a public limited company having share capital. Internationally, there were four pressures against which the mutualized stock exchanges were responding by assuming a competitive position through demutualization: globalization, deregulation, technology, and concentration.
These pressures are considered significant and very real. Demutualization is now seen as the only major response for traditional stock exchanges to respond to the threats presented by all the said above, as the London Stock Exchange (LSE), New York Stock Exchange (NYSE), Toronto Stock Exchange (TSE), Euronext, National Stock Exchange of India, Mumbai Stock Exchange and most other exchanges across the globe have already been demutualized.
As far as the process of demutualization in Pakistan is concerned, a draft bill was prepared by the SECP in consultation with all stakeholders and it was passed by the national assembly in 2008 but the process remained stalled as the special purpose legislation viz. Stock Exchanges (Corporatization, Demutualization and Integration) Bill could not get through the entire process for formal enactment. This enabling legislation would facilitate the exchanges post enactment to get demutualized, however, timeframe for the same is still uncertain.
PAGE: DO YOU THINK THERE IS A NEED FOR EDUCATION OF INVESTORS ABOUT STOCK MARKET, IF SO HAVE YOU TAKEN ANY INITIATIVE IN THIS DIRECTION?
IMTIAZ HAIDER: Investors are the backbone of the stock market. The prime function of the Islamabad stock exchange is to safeguard the interest of the investing public. The ISE is fully aware of the importance of investors' education and believes that by educating the public about stock market investments, further prosperity can be brought in the society. The objective of the investor education is to enable a person with little or absolutely no knowledge of stock exchange to efficiently trade securities and ultimately assist in developing a profitable portfolio. Therefore, we have taken the following measures towards the investors' education.
- Revamping of website by adding further informative materials on the stock market has been launched.
- Arrangement of presentations/briefings to the public about the working and functioning of the stock markets has been made.
- Special sessions of presentations/briefings to the educational institutions on the stock markets are being conducted.
- Investors Information Centers for dissemination of information to the public are opened.
- We are arranging seminars with speakers of high profile in the corporate.
- We are publishing the research papers about the capital market.
- Exchange's officials visit to different institutions for delivering lectures and briefings on stock investments.
- Internship program is introduced for the business graduates.
- Books and booklets on the shares investments/trading are available.
- We are arranging competition for managing portfolios amongst the students of tertiary level etc.
PAGE: HAS SHIFTING OF ISE FROM A RENTED BUILDING TO THE GRAND ISE TOWER MADE ANY IMPROVEMENT IN THE CONDUCT OF BUSINESS?
IMTIAZ HAIDER: It gives me immense pleasure while expressing that ISE tower has been completed and become fully operated since January 2010. Almost all the working members of the exchange housed in the previous rented building have shifted to the newly constructed ISE Towers and they are performing their business now more enthusiastically.
The completion of the building has created a very healthy impact on the financials of the exchange in terms of sale of office premises and rental income. The ISE Towers has given Islamabad stock exchange a new brand and identity and it now owns a magnificent asset, which is not available even with the exchanges functioning for the last many decades. The ISE management is now totally inclined to reap the benefits from this asset for the growth of its business and keep the facade of the ISE Towers as being the financial hub of the city.
PAGE: THERE IS A DIFFERENCE IN THE TENURE OF DIRECTORS NOMINATED BY THE SECP AND OTHERS. DON'T YOU THINK IT WOULD BE MORE APPROPRIATE TO HAVE A UNIFORM TENURE?
IMTIAZ HAIDER: According to the Articles of Association of Islamabad Stock Exchange, the term of the office of director is one year whereas the Companies Ordinance vide clause 178 prescribes the term of the director is for three years unless s/he earlier resigns, becomes disqualified from being a director or otherwise ceases to hold office. However, the Companies Ordinance at the same time permits through a proviso the deviation from such requirement to certain companies if so desired to vary the tenure of office of director. This variation has been based on the convention to conduct annual elections of the traders body like other business communities culture. However, the SECP is also interested to influence the exchanges to carry out modifications in their respective articles accordingly for the sake of consistency in policies while considering one year's term to be inadequate and insufficient for the directors to fully comprehend the issues of the capital market and to deliver according to their mandate for implementation of concrete measures for the betterment of the market and the stakeholders.
It is worthwhile to mention here that the stock exchanges had already suggested modifications in their Articles in the wake of demutualization, which inter alia contain the prescribing of term of three years for the office of directors, however, the issue remains pending due to stalled process of demutualization. At the same time, the matter is under active consideration of ISE for amendment in the existing regime and the exchange will soon decide this issue after consultation with other bourses.
PAGE: HAVE YOU TAKEN EFFECTIVE MEASURES TO TACKLE INSIDER TRADING? WHAT ARE THESE MEASURES AND ARE YOU SATISFIED WITH THE RESULTS?
IMTIAZ HAIDER: The insider trading is a real menace to our markets. Even the most developed markets are not immune of this evil. Unfortunately, the Pakistan has very poor track record for penalizing the white collar criminals and a big question mark is put before the capacity of the people for the enforcement of the law prosecution. There are no special courts, which could comprehend the sophistications involved in such matters. Despite all shortcomings, the monitoring and surveillance department of the ISE remains vigilant to apprehend the insider traders and minutely observes the trade patterns through sophisticated systems, however, despite all measures I am least satisfied and this social evil is still going on in our markets. There is a dire need to have a focused and concentrated effort and we must make a few test cases thereby making exemplary punishments to the culprits across the board without any discrimination. SECP and the exchange are working jointly to curb such menace from the market.