September 29, 2002	Sunday	Rajab 21, 1423

ISLAMABAD, Sept 28: All the remedial measures and recommendations made by the Inquiry Committee, which looked into the 2000 stock market crisis in Pakistan have been implemented successfully by the Securities and Commission of Pakistan, according to an official announcement.

Consequently, the market has continued to surge albeit minor fluctuations now and then in the face of numerous mishaps such as 9/11 incidents, Pakistan-India military standoffs and violent events in Karachi and elsewhere, the source pointed out.

The KSE-100 Index having crossed the 2000 mark is the most encouraging symptom of a vibrant market following various reforms carried out by the SEC over the past two years.

Consequent upon the events of May 2000 stock market crisis, the statement recalled, the SEC had constituted an Inquiry Committee to find out the causes for the crisis.

It submitted its report on August 31, 2000, on the basis of which two committees were set up by SEC: (1) to carry out an investigation to determine the bonafides of management of exposure limits at KSE and LSE; and (2) to find out whether any violations of Section 15-A of the Securities and Exchange Ordinance 1969 were committed in connection with the shares of Dhan Fibres and Dewan Salman Fibre.

The reports of these two Committees are now placed at the SEC website (www.secp.gov.pk).

The Inquiry Committee had pointed out several weaknesses in the governance structure, risk management, transparency, etc. Soon after release of the report, SEC initiated a reform agenda for addressing many of the issues that were highlighted therein.

The committee on exposure management, comprising Rashid Sadiq, Executive Director, SEC, and Habib-ur-Rehman, Managing Director, Unit Trust of Pakistan, revealed lapses and weaknesses in management of exposure regulations, etc.

Majority of the issues highlighted in the report, the SEC stated, had been addressed in capital market reforms. These include introduction of a self-adjusting system for exposure, effective risk management by redefining and enhancing net capital balance by 10 times, introduction of capital adequacy, strengthening of margin requirements and introduction of appropriate circuit breakers.

These reforms, together with compulsory broker registration, T+3 settlement system, prohibition of blank selling and development of rules for short selling, would help arrest market abuse and ensure market integrity. In addition, the problem of front-running has been sought to be eliminated by replacing the ‘disclosed’ system with ‘undisclosed’ system.

With regard to transactions in shares of Dhan Fibres and Dewan Salman Fibres, the committee observed that insider trading was difficult to establish in the absence of Insider Trading Guidelines. SEC implemented these in March 2001.

SEC was satisfied with the “successful” implementation of first phase of its reforms agenda in that it had helped in improving governance and risk management of the exchanges to a great extent, the statement remarked.

The Commission, meanwhile, had introduced regulations for good governance at the bourses, e.g.: the size of the board of directors has been reduced from 18 to 10, the office of vice- chairman has been abolished, and the Chairman would be elected from amongst the elected directors (brokers).

The introduction of a variety of reforms has helped promote greater transparency and investor confidence, the SEC stated, adding: “It is the SEC’s endeavour to play a proactive role in the establishment of a transparent and vibrant market.”