June 24, 2006	Saturday	Jumadi-ul-Awwal 27, 1427

KARACHI, June 23: The Karachi Stock Exchange (KSE) continued to clamp ban on short selling in futures contract. A meeting of the Board of Directors of the bourse held on Friday decided “that short selling in futures contract shall continue to remain prohibited until further orders,” said a notification released by the KSE.

A source privy to the meeting said that the resolution was carried by a “majority vote”. There was consensus on prohibiting short selling in futures contract for the month of July, but some directors attending the meeting, were of the view that “until further orders” should be scrapped from the decision.

The board also clarified that “all measures taken vide the June 14, 2006 notification were of interim nature and are subject to review by the board in due course of time”.

The July future sale contract is scheduled to open from Monday. Would the decision have a bearing on the market? Analysts thought that the impact would be limited. One of the four measures taken by the board on June 14 to stem the accentuated stock fall, was the ban on short selling in futures contract. As the law stands, blank/short selling on the ready counter is illegal, but before June 14, it was permitted to the extent of Rs50 million per scrip for each brokerage house.

But why did the board have to change the rules of the game? After 6 consecutive weekly declines from May 12 to June 16, when the country’s main equity market KSE-100 index had plunged by over 2,000 points (18pc) and lost around a trillion rupees in market capitalisation, there was an imminent fear of complete collapse on June 15.

The KSE board then announced several measures to put a floor under the fall. Those included capping the lower circuit breaker at 5pc per day; putting temporary ban on short selling in future contracts; increasing CFS-financed scrips from 14 to 30 and allowing 100pc securities exposure in futures trading.

The trick worked. And the week ended on Friday (June 23) saw the KSE-100 index recover 200 points or 2.1pc to close at 9,808. The gains would have been higher but for loss of 363 points (3.6pc) in second session of trading on Friday.

Views of market participants on what caused the sudden turn of the index to South on Friday were varying: A correction that was due; SECP’s intensive investigations in which ledgers and trial balances were being scrutinised of some 50 stock brokers and finally, the Supreme Court’s decision which declared the share purchase agreement and letter of acceptance in the case of privatisation of Pakistan Steel Mills Corporation as void. But it couldn’t have been the last, for the decision of the apex court arrived three hours after the close of trading. Did someone at the market then make an accurate guess of what was to come, or did some one knew what others did not?