KARACHI, June 23: Following the steep decline of 28 per cent, representing 4,500 points in the KSE-100 index from its peak two months ago, including more than 4 per cent drop on Monday, an anxious Board of Karachi Stock Exchange and the chief regulator-SECP, huddled together in a marathon meeting in Karachi, finally came up with four ‘market stabilisation measures’ late in the evening on Monday.

The Securities & Exchange Commission of Pakistan (SECP) unveiled, what analysts thought were the ‘trouble shooting’ measures aimed at putting a floor under the free fall of the market. The steps that could calm the market included: cutting down the maximum (lower circuit) that the price of a stock could shed in a day from 5 to 1 per cent; raising the maximum (upper circuit) that the price of an equity could gain in a day from 5 to 10 per cent and a ban clamped on short selling.

A statement released by the SECP (and a similar press release issued by the KSE) stated: “In view of the present continuous declining trend of the securities market and consequent possibility of systemic risk resulting in disruption of timely and smooth settlement of trades, a meeting was held today between the officials of Securities & Exchange Commission of Pakistan and the Board of Directors & management of the Karachi Stock Exchange under the chairmanship of Mr Razi-ur-Rahman Khan, Chairman SECP. It was mutually decided to adopt the following market stabilisation measures:

1. As a force majeure for a period of 30 days, the currently applicable security-wise circuit breakers in Ready, Deliverable Future Contracts and Cash Settled Future Contracts markets will be revised as follows, which will be reviewed again on July 15, 2008:

Lower Circuit Breakers will be applicable at price fluctuation of 1 per cent from the closing price of the previous day.

Upper Circuit Breakers will be applicable at price fluctuation of 10 per cent from the closing price of the previous day.

Short Selling will be completely prohibited in Deliverable Future Contract Market as currently allowed under Clause 6 (i) of the relevant Regulations. Furthermore, Short Sale in Ready Market with pre-existing interest against purchase on another exchange will also be prohibited. These prohibitions shall be for a period of one month, effective June 24, 2008. The said prohibitions will be reviewed again one week prior to the start of August Deliverable Futures Contract.

2. Bank Guarantees from “A” and above rated banks will be allowed as margin eligible security for Margin Deposit in the Ready, Futures and CFS Market. Tender of Mark to Market Losses will remain in cash in the Futures Markets.

3. After seeking necessary approvals from the competent authority, changes will be brought in the methodology for calculating receivables in members’ Capital Adequacy as follows: Less than 15 days -- 0pc; greater than or equal to 15 days but less than 30 days -- 25pc; greater than or equal to 30 days but less than 60 days -- 50pc; greater than or equal to 60 days but less than 90 days -- 75pc; greater than or equal to 90 days --100pc.

4. A Market Stabilization Fund of Rs30 billion will be launched in line with international practice. The utilisation of the said fund will be automatically triggered if and when volatile circumstances are witnessed in the market. KSE has been advised to submit detailed proposal for the same.