KARACHI, April 8: A meeting of members of the Karachi Stock Exchange was called by Chairman Yasin Lakhani on Friday to discuss the latest notice issued by the Securities and Exchange Commission of Pakistan (SECP), which revoked the earlier decision of the KSE board on the subject of profit distribution in futures market. The members met to put their heads together in interpreting, what seemed to be a single word: “netting”. The two sides (the SECP and the stock brokers) appeared to hold a conflicting view, on what the word actually meant.
A member privy to the KSE board said that in case the issue lingered on, some of the members of the board would fly over to Islamabad on Saturday for a face-to-face discussion with the chief regulator.
According to a senior member who attended Friday’s meeting, the SECP had asked the KSE management to delete the phrase “no netting whatsoever shall be allowed from retained profits, till final settlement
of the contract” from the minutes of the emergent meeting of the board held on March 17, 2005.
“The SECP believes that the decision taken on March 17 had merely elaborated and reaffirmed the regulatory requirement prescribed in regulation 12(a) of the Regulations Governing Futures Contracts of the KSE,” said a senior stock broker, elaborating that what it stated was that the variation margin (marked-to-market difference/ loss) should be calculated at the end of each trading day at the closing rate of the day and all losses in the accounts of the members should be settled in cash.
Accordingly, in the notice issued on Thursday, the SECP said: “The recent decision of the KSE board to delete this phrase is contrary to the above quoted regulation. It is therefore, null and void and cannot be implemented.”
A member taking a middle course suggested that the notice by the SECP was one of the series of measures that are being taken in quick succession to strengthen the risk management system. But he argued that without coordination and consultation with the members of the exchange, such measures went to create confusion, which negatively impacts the market.
No one wanted to go on record as having said anything to the press, but a member admitted that it was too technical a subject for even some of the old fashioned brokers to understand,much less a casual investor. But he argued that in rule 12 of the KSE future trading rules to which the apex regulator had referred, there was no such word as “netting”. But behind this simple word, there was chaos and confusion, which — unless satisfactorily resolved between the regulator and stock brokers — could push the market into another crisis, even before it has emerged from the first.
On the minds of every trader in shares, who saw the KSE-100 index plunged by another 116 points on Friday, was one straight question: When would the investor confidence be restored?
