KARACHI, Aug 1: The Unique Identification Number (UIN) system completed its first day of implementation successfully on Tuesday at the stock exchanges. The system provides that all clients’ codes and names of stock brokers are now subject to pre-trade UIN verification.
Karachi Stock Exchange Managing Director M.A. Lodhi affirmed that the process had worked through the day without encountering a problem. He said that the exchange had been preparing for its launch for over a year. He thought it gratifying that the volume of transactions were not impaired but remained high at 235 million shares.
A sitting director on the board of KSE, Abid Ali Habib corroborated the management’s statement saying that the respond time of the system was also accurate. He said that several mock trading sessions were held prior to the launch of UIN, to pass it through stress tests. He congratulated the KSE’s IT department for its successful launch. But forever afraid of the change, some of the small brokers and many clients were anxious about the implications of UIN.
Simply defined the system can be termed as another ‘reform’, which puts a bar on passing of an order for sale/purchase without a UIN. The number would be assigned to each account holder by the National Clearing System (NCS), through the stock broker. The underlying document for the issuance of UIN is the National Identity Card (NIC). Each client would be issued the UIN on the basis of his ID card number. The existing clients have been issued the UIN, while a processing time of 24 hours would be required for a new client after he files the account opening form with a broker.
The major underlying purpose appears to be to stem the prevailing practice of a single client opening accounts with various brokers, which increases trading risks especially if the client is also using the CFS (badla). The new system would hopefully make trading more transparent and will facilitate on-line investigations. “It will leave a paper trail of transactions by a client,” says an analyst.
The engineers of the system conceded that shrewd clients can still take a longer road round the law. Just as in case of Initial Public Offerings (IPOs), several accounts could be opened in the name of people who really do not trade but hold the NIC, such as factory workers, domestic servants and others. “There cannot be a fool-proof system,” says an official at the exchange, “where only 0.5 million people trade in stocks, among tens of millions of people who in this country hold the NICs, it is almost impossible to stop that practice,” he said, but stressed that the system would make ‘benami’ transactions difficult.
Another analyst observed that the onus of maintaining absolute secrecy about the trades by each client would be on the NCS and those corporate monitors who would have access to the real-time trading data. It was possible to implement the law of one-client-one-account holder and prevent ‘benami ‘accounts in the name of unconcerned people by securing their NICs, said an analyst. But that would require reforms of the whole financial sector. All banks are currently required to “know their clients”. Is that rule being strictly followed? If the banks do know their clients, they would know that the ‘cook’ or a ‘driver’ of a particular person does not actually trade in equities. The bank may not then clear a broker’s cheque and refer it to the bourse.
But all that is a tall order. For the moment, it is enough to celebrate the fact that another reform has been introduced and UIN has been implemented at the Pakistan bourses to bring it one step closer to developed markets of the world.
