March 01, 2007	Thursday	Safar 11, 1428

KARACHI, Feb 28: Two session and four days away from the implementation or the elimination of client level netting system (CLN) the stock brokers have raised issues which are almost certain to either result in extension of date of CLN or throw the market in turmoil.

A senior stock broker said that the problems were not of their making but stemmed from the rigid attitude of the Securities and Exchange Commission of Pakistan (SECP).

On the other hand, Mr. Razi-ur-Rehman, chairman SECP, told Dawn on Wednesday evening said that he had received a letter from the stock brokers a short while ago. And he claimed that all issues pertaining to CLN had been settled with the broker community in earlier meetings and that the implementation had already been delayed several times. “But if they have reservations my doors are open for talks,” he said. He was, however, at a loss to answer whether a solution to the problem could be found in four days time.

The implementation of CLN is to go into effect from March 5. An informal meeting of the members was held on Wednesday afternoon at the KSE. A statement signed by 71 members of the KSE and released from the management’s office said that they were “concerned over the introduction of client level netting without addressing various pending matters.” At another place the statement, which was released to the press, said that members were “ready to implement client level netting subject to removal of anomalies” especially arranging exposures by financial institutions directly to KSE which comes solely in the domain of SECP.

And after pleading all of their case the management/brokers’ statement concluded: “While the KSE management and members are fully prepared and ready for the implementation of client level netting on scheduled time i.e. March 5, 2007, the relevant issues as highlighted (below) as well as already taken up by the management of the Exchange on February 23, 2007 need to be addressed and resolved immediately to pre-empt any major upheaval in the market.”

And sting was in the tail: “The members observed that in such an eventuality the responsibility will solely be of SECP.”

Two points raised in the joint statement issued after the meeting of the members were the following: 1. Trading data asked by the SECP relevant to clients for the period January 1 to June 30, 2006 as per SECP directive; and 2. Introduction of the client level netting without addressing the following matters:

a) Introduction of margins payable by financial institutions directly to the exchange. b) Across the settlement netting to the extent of square-off positions of client in ready market. c) Disbursement of the profits collected against market to market losses immediately. d) Review of capital adequacy regime in the light of netting system. e) Exemption of margin against deliveries of outstanding sales position.

The joint statement stated that the members present in the meeting expressed their views on each and every aspect of the client level netting in context of the matters referred to above.

The members also expressed their serious concern over the latest information asked by the SECP in relation to client level transactions for the period January 1 to June 30, 2006. It was stated that since the UIN system was introduced from August 2006 there was no reason to ask information which was neither readily available nor can it be arranged after a lapse of one year.

The members also observed that the detailed daily data on trading is being forwarded by Exchange to the SECP for over last five years. Accordingly, the SECP must have the relevant information in their office and as such the reason to call for such information once again is not clear. The members observed that the information asked by the SECP was not relevant to any specific case nor was any reason for asking such information in relation to all clients which may compromise the confidentiality of clients.

It was further observed that such acts and attitude on the part of the regulator is creating confusion and seriously affecting the investors' confidence especially in a situation when the government at the highest level is making concerted efforts to invite and attract foreign investments in the country.

The brokers statement said that the frequent changes in the reforms in hand and introduction of new reforms by SECP an on going basis with an obsession on timelines have possible adverse impact on market prices. These portray a bad impression of capital market in particular and the country in general.

The members also stressed that it was of critical importance for the growth of the capital market for SECP to give a long term road map for reforms which is achievable and realistic.

The members also expressed their concern over the SECP attitude in the matter of procedure of entitlement of bonus/right share in the CFS market, which was a normal practice followed by the Exchange for the last many decades without recourse to any alternate system.

c) As a result of their refusal to accept the recommendation of the Exchange as communicated by their reply vide their letter dated January 15, 2007 which was circulated amongst the members the market sentiment was badly affected due to this decision.

And the statement concluded on the following note: “In order to address all the relevant matters for their early resolution with the SECP, the members present constituted a committee comprising of the board members as well as some senior members of the Exchangeas under:

Mr. Shehzad Chamdia 2. Mr. Muhammad Shoib Memon 3. Mr. Dawood Jan Muhammad 4. Mr. Sikandar Esmail Bagasrawala 5. Mr. Amin Issa Tai 6. Mr. Muhammad Yasin Lakhani 7. Mr. Firozuddin A. Cassim 8. Mr. Aqeel Karim Dhedhi.

The committee was requested to seek an appointment with the chairman SECP to address these concerns and for their resolution before the implementation of the client level netting system.”

Independent analysts observed that the serious difference of opinion between the SECP and KSE could not have surfaced at a more unfortunate time.

Following the world market turmoil, the KSE had plunged by 198 points on Wednesday and investors in equities across the world were worried of what would happen the next day.