November 05, 2006	Sunday	Shawwal 12, 1427

KARACHI, Nov 4: The stock broker’s card at the Karachi Stock Exchange bears a price tag of Rs100 to Rs110 million. Three years ago when the then management auctioned a couple of unclaimed cards to obtain funds for renovation of the buildings, at the last call the buyers were willing to pay no more than Rs35 million a piece.

But before anyone starts to envy the 200 brokers who hold the KSE cards, he ought to look around at the phenomenal rise in prices of other assets as well.

How about the property? An apartment in Bahadurabad in Karachi, for instance that fetched Rs2 million a couple of years ago, is now worth Rs12 million or more. Prices of ultra luxury apartments in Karachi are now known to have incredible going price of Rs22 million!

Under the circumstances, the rise in price of tightly held 200 stock brokerage cards may not be considered very surprising. More so as the share values have witnessed cumulative annual growth of 65 per cent over the last four years.

The Exchange premises reverberate with talks of numerous stories of rags to riches. As the volume of shares transacted rises at the exchange, so also the brokers’ commission and the cost of his seat.

The Annual Report of the Karachi Stock Exchange for the year ended September 30, 2006 showed that during the year, the ownership of 46 membership cards had changed. But a market participant thought that only a few of them may have been sold by the holder in exchange for cash.

“Most of those name changes are all in the family,” a market participant familiar with the trend said. New admissions in place of old ones generally represented ‘corporatisation’ of memberships. Initially all cards were in the names of individuals, but since the early 1990s those began to be converted into private limited companies.

One of the reason was of course the tax incentive on capital gains that has been allowed for a limited period for individual members who turn corporate, an analyst explained, but he added: “The greater reason is that clients, particularly foreign individuals and funds are more comfortable doing business with entities rather than individuals”.

A cursory glance at the 46 name change on membership cards during FY06 shows that excepting two all appear to represent conversion of individual membership to private limited companies. But there is also said to be another reason for individuals to go public. As the value of the cards rises and the joint family system crumbles, the holders of the cards are anxious to distribute the membership in the form of shareholdings to his various siblings.