4, April 2005	Monday	24 Safar 1426

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ISLAMABAD, April 3: The Securities and Exchange Commission of Pakistan (SECP) did not reveal to the Public Accounts Committee (PAC) the names of the major beneficiaries of the Karachi Stock Exchange (KSE) crisis in which small investors lost an estimated Rs150 billion.

The PAC chairman, Malik Allahyar, had taken suo motu action on the crash of the KSE and called the relevant officials and representatives of the SECP and the stock exchanges to explain the reasons before the committee.

After a colourful power-point presentation by the SECP officials, termed as an eyewash by certain PAC members, the Auditor General of Pakistan, Muhammad Younas Khan, asked the SECP to give the names of the major operators including the banks, DFIs, NBFCs which purchased shares in the ready market and subsequently sold them in the future market.

The SECP chairman, Dr Tariq Hasan, managed to avoid giving the names by taking the plea that if he had known that this question would be put up to him, he would have brought the names with him. The committee members directed him to provide the names later on.

A committee member, Qamar Zaman Kaira, observed that it was the responsibility of the state under Article 3 of the Constitution to save the people from all forms of exploitation. He said what happened in the KSE was an example of “colourful exploitation” by the manipulators.

MNA Kaira asked the SECP chairman to identify the forces which manipulated the KSE. He also asked the SECP chairman to explain if it was correct that the State Bank of Pakistan had issued a circular requiring the banks to state their liquidity position and later the same circular was withdrawn.

Unwilling to place the names before the PAC, Dr Tariq said neither the SECP nor the respective stock exchanges could give any names to the PAC. He said investigation and analysis was yet to be completed and a premature judgment could not be passed against anyone. “In due course of time, you will get the names after the task force completes the investigation,” he said.

Dr Tariq told the committee a distortion took place in the KSE Index due to OGDC. He said the Index had recently been recomposed but it still needed to be reconstituted. “We have asked the KSE to bring about the real figures of the volumes,” he said.

SECP chief said the SBP had issued a circular to the banks consistent with the policy to gradually phase out the COT (Carry Over Transactions) financing. He said the SBP circular was to regulate the banks COT.

MNA Kaira asked the SECP chairman if it was not cruel to allow the government departments and the banks to do COT, to which Dr Tariq said COT would be phased out till June 3.

When MNA Kaira asked about the amount which the government invested in KSE, Dr Tariq said the questions should be asked from the ministry of finance. MNA Kaira observed that “circuit breakers” saved the KSE only from a technical default.

Chairman Lahore Stock Exchange informed the committee that Badla rate in Lahore reached up to 200 per cent. In response to a question, he said 200 per cent Badla rate represented the over- heating of the market.

When Malik Allahyar asked if any special measures were taken to stop the crash, the KSE MD, Moeen Fuda, said he had been advising and warning the public to be careful while investing in the stocks.

He presented a record of his press statements before the committee and said some of his attempts to introduce risk management measures in the KSE were frustrated by its board of directors.

When MNA Aasia Azeem asked if it was true that a cheque of one billion rupees was given to a KSE broker and asked the officials to give his name, no names were revealed. However, MD KSE, Moeen Fuda and Chairman KSE, Yaseen Lakhani said making settlements was a routine process. The PAC was told that highest turnover in Asia’s history was witnessed in the KSE.

Ch Nisar wanted to know the names of the big financial groups which made a killing in the KSE at the expense of the small investors but no names were given to PAC during the meeting.

MNA Liaquat Baloch wanted to know the involvement of the SECP and the finance ministry in the KSE affairs. He said the KSE did reflect the true economic picture of the country despite the government claims to the contrary.

Yaseen Lakhani, the KSE chairman, observed that credit for increase in Index was taken by the government but the brokers were blamed if the market plunged.

MNA Hafiz Hussain Ahmed asked the officials if it was true that different government departments bought stocks worth five billion rupees when Mr Shaukat Aziz was the finance minister. He said the details about the loss suffered on government investments should be revealed to the committee. However, the SECP chairman said the finance ministry would be in a better position to answer the question.