Recently, a number of listed companies have received awards from KSE in a glittering ceremony held at Karachi. Listed companies, along with investors and brokers, are a core stakeholder in stock exchanges but it is usually only on occasions like this that they are given the importance they deserve.

Most of the time at exchanges and SECP is spent on issues that primarily concern trading, such as margins, badla financing, stamp duty, CVT, etc even though since their inception, all three exchanges have been primarily financed by listing fees. Highlight of the awards ceremony was also extension in exemption from capital gains tax for one more year, which again was a core issue for traders and not for listed companies.

Unless exchanges and SECP actively try to strike a balance between competing needs of different stakeholders, listed companies may continue to be ignored. What is required to change this situation is not a great deal of resources but the realisation that listed companies are a core stakeholder in exchanges and should be treated as such. An example that explains this point is the regulations and procedures used by exchanges for collecting and disseminating ongoing corporate announcements made by listed companies.

Ongoing disclosure of material price sensitive information by companies is a core requirement for pricing listed securities. Market fairness demands that corporate announcements must be made available to investors at large as soon as possible and without any discrimination. The underlying rationale is simple – those receiving material price sensitive information before others could make unfair trading profits. There is, however, much in current regulations and systems of exchanges that is obstructing “immediate, identical, and simultaneous” disclosure and creating room for controversies.

First, the system for receiving and disseminating corporate announcements is both obsolete and unfair. At present, when a company with multiple listings makes a corporate announcement, it has to send a fax to each exchange. After receiving the fax, exchange first make the announcement through the speaker system installed in its premises, which gives brokers and clients present in the building an unfair advantage over other investors.

There is no trading halt and announcements often lead to brisk speculative activity better explained by mob psychology rather than financial analysis. This fax and speaker system is quite different from systems used by international exchanges where modern information technology and trading halts are used to ensure efficiency and fairness.

Second, listed companies do not know where to send the fax first, KSE, LSE, or ISE. The problem is real and serious because almost all actively traded companies are listed at all three exchanges and the dominant majority has a dual listing. Some companies prefer to send their faxes to KSE first probably because KSE is the largest of the three exchanges in terms of market activity and number of listings. That, however, is managerial judgment and necessarily involves subjectivity. The sequence of sending faxes can also be dictated by the load on the fax machines at the exchanges.

It is possible that due to a prolonged delay caused in connecting to the fax numbers at KSE, concerned officials at the listed company may send the fax to LSE or ISE. We know it from experience that receipt of important faxes at the smaller exchanges prior to their receipt at KSE has dragged the concerned companies into controversies. The problem may become more complex because international listings of domestic companies would require a geographically neutral dissemination system.

Third, procedure for making corporate announcements is in conflict with the Code of Corporate Governance. According to clause XXIII of the Code, “Every listed company shall immediately disseminate to the SECP and the stock exchange on which its shares are listed all material information relating to the business and other affairs of the listed company that will affect the market price of its shares. Mode of dissemination of information shall be prescribed by the stock exchange on which shares of the company are listed.” A similar requirement for ongoing disclosure of material information is also stated in regulation 28 of Listing Regulations of KSE.

The Code is part of listing regulations of exchanges and it makes it clear that disclosure ought to be “immediate”, however, procedure used by exchanges for corporate announcements requires that disclosure can only be made on working days during trading hours. Afterwards, the designated fax machines for receiving faxes from listed companies are switched off. This procedure often forces the company to hold back information at the risk of leakage.

The problem becomes particularly serious when a board meeting of listed company is held after the close of market on Friday but it cannot disclose the information to anyone until it has sent the fax to the exchange on Monday morning. It is also not clear if anything is being achieved by requiring an “immediate” disclosure to SECP. There is no known procedure used by SECP for dealing with these faxes, therefore, any stray fax carrying price sensitive information carries potential for a scandal for both the listed company and the regulator.

Finding satisfactory solutions to these three problems in corporate announcements is well within the reach of exchanges and SECP. Guidance is readily available, be it IOSCO’s “Principles for Ongoing Disclosure and Material Development Reporting by Listed Entities”, US SEC’s “Regulation Fair Disclosure” or Bursa Malaysia’s “Best Practices in Corporate Disclosure.” Exchanges and SECP have the power to amend listing regulations and they also have the IT professionals and money to make a world class system.

For instance, they could introduce a unified and automated corporate announcement system for all three exchanges which would provide information live to a designated website and electronic media. The only reason this important issue has remained unaddressed for so many years is that it never made it to the list of priorities of decision makers.

There are also a number of other areas in which listed companies are facing problems. Take, for example, lack of a thorough review of Code of Corporate Governance which is part of listing regulations since March 2002. In 2003, a study sponsored by SECP to assess impact of the Code suggested a number of modifications but they were not followed up. Similarly, there is little justification for charging listed companies additional listing fee at the rate of one-tenth of one per cent of increase in paid-up capital.

This additional fee is not subject to any cap and in a number of cases (such as KESC) it has run into millions. There are also a number of minor irritants, such as KSE’s listing regulation 18 which requires that each listed company send to exchange 300 copies of its annual reports even though the company is already required to send its annual report to each shareholder.

In sum, there are a number of problems being faced by listed companies in dealing with the exchanges but pre-occupation of exchanges and SECP with matters related to trading does not let them turn their attention to listed companies. Decision makers have an opportunity to change things for the better by systematically identifying and addressing the issues facing listed companies. Let’s hope that 2007 would be the year for this change.