KARACHI, July 11: Regulators finally found keys to open up ‘lower locks’ allowing exit to entrapped investors, which analysts thought, would also boost the trading volume of shares, that had dwindled to a tenth of the average of an ordinary day.

In the scheduled meeting between the Securities & Exchange Commission of Pakistan and the boards of directors of the three exchanges, which was presided over by SECP Chairman Razi-ur-Rehman on Friday, the various ‘market stabilisation measures’ adopted on June 23, were reviewed and revised.

A similarly worded press statements released by the SECP and the KSE observed that the SECP had, on the recommendation of the KSE board, approved adoption of various market stabilisation measures on June 23, in the face of “continuous declining trend of the market and consequent possibility of systemic risk, resulting in disruption of timely and smooth settlement of trades”.

The regulators said that according to the then announcement, those measures were of temporary nature and were to be reviewed again.

In the meeting between the SECP and the bourses on Friday, all the three stock exchanges were stated to have appreciated the initiatives taken on June 23, for providing necessary cooling period essential for the market to recover from the state of affairs at that time. After thorough deliberations and with the consensus of all the three stock exchanges, the following decisions were taken:

1. The upper and lower security-wise circuit-breaker for each market separately (except stock index futures market) shall revert back to 5 per cent or Re1, whichever is higher from the closing price of the previous day, as specified in the regulations governing risk management of the exchange with effect from Monday, July 14, 2008.

2. Short sale will be allowed as per the regulation governing Deliverable Futures Contract, which includes short sale on “uptick” and “zero tick”. Additionally, CFS buy positions will not be considered as pre-existing interest, unless such positions are released prior to making such sale. These changes will be implemented with effect from August futures contracts. It was also agreed that the members shall not be allowed to make short sale unless the trade is so declared at the time of placement of order through the automated trading systems of the stock exchanges in a special Short Sale Order Window, which will be available to market participants prior to the start of August deliverable futures contract.

3. Short sale will be allowed in ready market subject to meeting the pre-requisites as mentioned in the regulations for Short Selling under Ready Market, 2002. In order to ensure that there is no market abuse of blank selling, short sale with pre-existing interest against purchase on another exchange will only be allowed subject to implementation of inter-exchange UIN regime.

4. Further, acceptance of bank guarantees from “A” and above rated banks have already been allowed as collateral, subject to board of directors’ approval of the respective stock exchanges, in respect of Exposure Margins, Mark-to-Market Losses and where applicable Special Margins and the relevant regulations have also been updated accordingly.

5. In addition to the above, the concept paper for the establishment of Equity Market Opportunity Fund (EMOF) has already been discussed with the Institutional Investors, who have in principle supported the concept and agreed to its need. As soon as the formal approval and financial commitment towards the said fund is received from these institutional investors, the EMOF will be launched. The modalities/mechanics of operations of the EMOF were also discussed by the participants of the meeting and will be finalised after due deliberations.

6. There will be strict monitoring of market activity, especially with reference to blank sales in excess of allowed limit and other market manipulations, by the stock exchanges and the SECP.

Earlier, in an in-house meeting of members of the KSE on Friday, the board and a big number of broker fraternity, sitting across, put forward their point of view.

A member present at the meeting said that the board defended the June 23 market stabilisation measures, while some of the members were vociferous in seeking an exist mechanism.

It was agreed that the SECP would be requested to review the circuit-breakers to revert it to old 5 per cent upper and lower mechanism from Monday.

After almost 11 sessions of suffocating trading, which showed a slow but continuous meltdown of equity values, the investors were breathing easy on Friday evening with the news of unlocking of lower locks from Monday.

Market participants said that everyone would be eagerly watching for the behaviour of the market on Monday after the ‘cooling period’.

The formation of minimum Rs50 billion Equity Market Fund is also of considerable interest. All modalities regarding the fund would be discussed in a meeting between the regulator and the financial institutions on July 16.

If an agreement is reached, the fund was likely to be launched over the next two weeks. “However, raising such a huge amount in such a short notice remains a big question mark,” an analyst said.