September 26, 2002	Thursday	Rajab 18, 1423

ISLAMABAD, Sept 25: The Securities and Exchange Commission of Pakistan has expressed its concern over the persistent failure of Karachi Stock Exchange to adopt undisclosed trading in its system in the interests of credibility in the stock market.

In fact, SECP commissioner (securities market) Shahid Ghaffar told Dawn here on Wednesday, the Commission had been raising this issue in every meeting of the SECP-Stock Exchanges Coordination Committee over the past several months and urging the KSE management to adopt the system without delay.

The KSE, in fact, had assured the SECP to give up the ancient open market outcry system and switch to the new undisclosed trading system in conformity with the practice elsewhere in the world.

The attitude of the country’s largest bourse has been rather enigmatic. The Lahore Stock Exchange was the first bourse to adopt it. In fact, it led its counterparts by developing it. The Islamabad Stock Exchange followed suit. But not the KSE, although it too has been using the automated system provided by the LSE.

Initially, the bourses had to operate the new system with full disclosure of the transaction price of shares, identities of seller and buyer and the broker.

The new system functions on the basis of time efficiency and price efficiency. Moreover, there is in place the settlement and clearance system which makes delivery of shares, thus reducing the role of the broker to that of a mere intermediary.

This rendered the need of disclosing the broker’s identity too infructuous. Withholding broker’s name was also considered necessary by the SECP as part of the capital market reforms and also for infusing the stock market with transparency and credibility.

Nevertheless, the SECP continued to receive persistent complaints particularly from foreign investors, who alleged that some of the brokers were indulging in front-running. This was attributed to a flaw in the system whereby the computer automatically released a sticker containing information about the broker, the price at which certain shares had been transacted and so on.

This allowed the big brokers to play with the market and trigger speculative trading in selected shares.

The bourses of Islamabad and Lahore re-set their systems to withhold the information that could be used for speculation and other irregularities. Nevertheless, some brokers still manipulated the system for ulterior purposes.

For example, they made it a practice to purchase the mandatory minimum 500 shares of a blue scrip at a high price with the sole objective of finding out the name of the broker through whom a transaction had taken place.

The automated system had to be re-set again to ensure that no information about the transaction would be released by the computers. The Lahore Stock Exchange, accordingly, adopted the new system on August 15 and all trading being conducted there now is undisclosed.

The Karachi Stock Exchange was given until August 31 to adopt the system. For inscrutable reasons, however, it has not done so about one month after the lapse of the deadline. On September 16, therefore, the SECP issued a directive to the managing director of KSE to go in for undisclosed trading without any further delay and report compliance.

It seems, however, that some of the brokers who have acquired a vested interest in the old Open Market Outcry System or its later version being used even under automated system are too powerful for the KSE management to enforce undisclosed trading.