ISLAMABAD, Jan 28: Development of primary market is one of the important objectives constituting future agenda of the Securities and Exchange Commission of Pakistan.

This was stated by the chairman, SECP, Khalid A. Mirza on Tuesday at a press briefing where he presented the SECP’s third annual report for 2001-02.

Responding to newsmen’s questions, he said although the myriad regulatory measures taken by the Commission during the last three years had stabilized the capital market and inured it to systemic shocks, the primary market continued to be dull.

During the period covered by the report, there were only 3 Initial Public Offerings and three offers for sale. Of these six issued, five remained grossly under-subscribed. The only exception to the dismal response was the 10pc shares of National Bank of Pakistan, which were oversubscribed.

Yet the Commission has come a long way since it successfully overcame the crisis of May 2000. During the second year of its existence (2001-02), SEC was able to engender faith in the integrity of the market, improve the governance and risk management aspects of all the three stock markets.

A major development of the year, according to the report, was the implementation, in the face of initial resistence, of a Code of Corporate Governance. Thanks to the discipline imposed on the auditors, the quality of audit reports had improved considerably, Mirza observed.

All these measures have had a salutary impact on the level of investor confidence as evident from the fact that the proportion of “real” investments (as distinct from carry-over trade) rose from as low as 1 to 2pc of transactions’ volume to over 10pc.

Small wonder, the performance of the market was ranked as among the best in the world as a consequence of enhanced investor confidence arising out of the proactive regulatory approach as well as the market’s visible under-valuation in relative terms, the report states.

During this period, the Commission itself was transformed and its institutional capacity strengthened through appropriate re- organization, staffing, training and automation.

As a result of effective enforcement actions taken by the Commission, the corporate sector appeared to have become much more responsible and disciplined and the quality of corporate disclosure, including financial reporting has greatly improved. Similar results were obtained when the SECP tightened its enforcement screws vis-a-vis auditors, stock brokerage houses, modarabas and insurance companies, SECP chief stated.

The SECP has set up special cells to resolve investors’ complaints against brokers, which has stimulated the stock exchanges to dispose of such complaints expeditiously.

“While a lot has been achieved in the last two and a half years, there is a lot that still needs to be accomplished,” he remarked. Thus of the three primary drivers of capital market development, i.e. venture capital, securitization and corporate debt, considerable progress had been made with respect to the latter two. As regards venture capital, it remains a problem because the tax aspect has yet to be resolved.

The future agenda of the Commission includes continued efforts, inter alia, to deepen the market and improve risk management at the exchanges; further strengthen audit practices and enforce IASs; develop the mutual funds, pension funds and insurance industry; encourage on-line trading; implement a phased programme for replacement of COT or “Badla”; and further strengthen the institutional capacity of the Commission.

The Chairman also reiterated his pledge to adhere to international regulatory benchmarks and to remain in harmony with the convergence in regulatory standards that is evolving in International Organization of Securities Commissions (IOSCO).

He was confident that SECP, through such measures, would realise the vision it has set itself “to promote an efficient and transparent capital market, develop the corporate sector and protect the investor through responsive policy measures, effective regulation and enforcement of best governance practices.”

Answering newsmen’s questions against last week’s slump in shares market, Mirza said no power on earth could stop such movements of the market. On the other hand, it was a matter of satisfaction for him that there was no systemic risk.

Thanks to the regulatory framework close to international standards, the stock market in Pakistan was stable as evident from the fact that it had climbed steadily from 1300 points to nearly 3000 in a year. The onslaught of bears last week was the outcome of a market being overbought. Market mechanism had to come into play to remedy the situation.

Commenting on a journalist’s remark that the crisis resulted from the increase in badla rate to 50 per cent, Mirza said it was an attempt to cover the risk connected with an overbought market. He saw the attempt to cap the rate as imprudent. “I agree with the Lahore Stock Exchange in its decision not to prescribe any ceiling,” he added.