ISLAMABAD, March 11: The Securities and Exchange Commission of Pakistan (SECP) will inspect brokers to detect manipulation and insider trading in Karachi Stock Exchange (KSE) from next week.
“I feel the sentiment of the market is bearish but the trend is bullish as few stocks are pulling up the whole index...Our teams are in Karachi and will start inspections of the brokers from next week to check distortions and safeguard the small investors as well as the market’s integrity”, said SECP Chairman Dr Tariq Hassan at a press conference here on Friday.
He also directed the stock exchanges to submit a time bound plan of action to the SECP by April 15, after reviewing the current system of risk management, about which directives had been issued last week. The new risk management measures are part of SECP’s second-generation capital market reforms, he added.
He said the SECP needed to review the index and take timely risk management related actions to avoid certain shocks and to strengthen the “shock absorbers” also. The commission, he said, was analyzing the market and taking various measures in order to trace those who were responsible for “any abnormality” in the stock exchange — which is tempting the small investors after crossing many psychological barriers.
He also warned the people to first know the tricks of the market and then invest and appealed to the media not to
create any hype about the
market.
Dr Hassan said the SECP over the previous years had introduced reforms in the field of risk management, governance, transparency and investor protection to ensure level-playing field. The risk management measures would further the objectives of these reforms in a significant way.
PROFIT DISTRIBUTION: According to the SECP’s directives, he said, if the share price exceeded 30pc of the opening price of the contract, profits were to be distributed up to 30pc on weekly basis every Friday while the rest of the profit would be retained till the final settlement of the contract as per the Regulations for Futures Trading at the Karachi Stock Exchange (KSE).
However, it was felt that this distribution was high and could pose systemic risk for the market. In this regard, the exchanges were required to take a decision regarding the downward revision of the aforementioned profit margin, which was to be implemented from the opening of the April 2005 futures contracts, he said.
POSITION LIMITS: He said the exchanges have been directed to introduce a number of
position limits for the futures market in line with international standards, for the opening of
the May 2005 futures contracts.
They included overall limit on a broker in relation to the total futures contracts in a particular share; an overall limit on a particular client of a broker in relation to the total futures position taken by the broker in a particular share; number of futures contracts in a share is limited to the free-float of the share; netting should not be allowed across T+3 and Futures positions to determine exposure of a member for the purpose of Capital Adequacy.
The practice of netting exposures across the Ready Market and Futures Market enabled brokers to take greater exposure than they would have been allowed to take otherwise and thereby enhanced the systemic risk for the market, the SECP chairman said.
In order to reduce systemic risk, no netting shall be allowed by the exchanges across T+3 and futures positions to determine exposure of a member for the purpose of capital adequacy with effect from April 3.
