August 28, 2002	Wednesday	Jamadi-us-Saani 18,1423

ISLAMABAD, Aug 27: Khalid A. Mirza, chairman, Securities & Exchange Commission of Pakistan, has said the next goal of the regulator in its efforts to reform the capital market is to replace Badla with margin financing and futures market.

Delivering his presidential address at a well-attended seminar on “Overview of capital market issues and future trends” here on Tuesday, he observed that Badla carried systemic risks. “I am at present trying to develop a phased programme for replacement of Badla.” This was being addressed by a committee set up under the Capital Markets Consultative Group.

Among the participants were senior executives of various financial institutions, brokers and staff of the SECP, including its commissioners Shahid Ghaffar and Abdul Rehman Qureshi.

Mirza reviewed the steps taken by the SECP since its inception two years ago and said the reforms already introduced by the Commission had received worldwide acclaim. Besides, the stock market of Pakistan today was at the top in terms of its performance, he pointed out.

With the recent controversy over the SECP’s directive to separate the management of stock exchange from ownership by ordering election of non-broker chairman and allocation of 50 per cent seats on board of directors to non-member directors in his mind, the Commission chief said that directive had been designed carefully to further interests of all market participants, to improve the image of stock market and to enhance investor confidence.

The next step on the road to development of capital market, he indicated, was to de-mutualize the stock exchanges in line with the international trends.

By separating ownership from the users (brokers), de-mutualization, he argued, would enable stock exchanges to develop their business without any consideration to conflicting member-interests.

Responding to questions raised earlier, he said pension funds, insurance companies and provident funds would venture into the stock market only after they perceived it as a place where there was fair play and transparency.

Going on to spell out the broad agenda for the future, Mirza identified three “drivers” of the capital market development — venture capital, securitization and corporate debt. In Pakistan, all three areas had been mired in problems mainly connected with tax and Islamization.

Progress, nevertheless, had been made with respect to two of these drivers viz-a-viz securitization and corporate debt securities as a result of satisfactory resolution of tax issues.

As regards venture capital, he expressed the hope that tax authorities would resolve the problem related thereto in the interest of the economy and the capital market.

The future agenda of the SECP, he stated, would also include efforts to: Deepen the market and improve risk management; further strengthen audit practices and enforce International Accounting Standards; clarify, enforce and enhance standards of corporate governance; facilitate a vibrant primary market with strong underwriting and distributive capacity; develop and strengthen the mutual funds industry, pension funds, and the insurance industry to provide the market institutional underpinning; and further strengthen institutional capacity of the SECP.

Earlier, Dr. Asim Ijaz Khawaja from Harvard University, USA, in his lecture, said the equity markets did not function properly because of the brokers, who operated as principals instead of playing their proper role as market intermediaries.

Ali Ansari, chief executive, AKD Securities (Pvt) Limited, said the equities market was beset by four key investor issues — lack of stability, lack of choice, lack of trust and lack of market access.

Stock market of Pakistan was the most volatile in the world but it generated hardly any genuine investment, he remarked.

Sameer Ahmed, managing director, Lahore Stock Exchange, recounted the reforms being carried out at his bourse both under directives of SECP and of its own volition. The LSE, he said, now had independent management which, free of conflict of interest, was able to focus on the interests of the exchange as an institution. Realising that investor confidence was the key to investment, the LSE verified or settled 413 claims amounting to Rs83 million, he stated. More than Rs20 million was actually paid out to claimants during 2001-02. Besides, 222 cases worth Rs55 million awaited resolution.