ISLAMABAD, Aug 29: The Senate Standing Committee on Finance has asked the Securities and Exchange Commission of Pakistan (SECP) to start checking the “puzzling” post-April volatility in the stock exchanges that has caused stocks to shed value and has been creating a crash-like situation every now and then and scaring away investors.

Presided over by its chairman Senator Haroon Khan the committee held its meeting to know from the officials of the SECP as to why the commission has adopted a somewhat hands-up approach to the recent crashes in the market and did not do anything till last weak to discourage short-selling and artificial panic caused by negative practices like insider trading.

The committee also observed that Pakistan was witnessing a unique situation because the growth in the economy was going down but inflation was constantly on the rise. It also called for the introduction of the Bankruptcy Law in the country.

The chairman observed that not only at the end of last year, but in the beginning of this year as well, the stock markets led by the Karachi Stock Exchange (KSE) were strong and even withstood the assassination of former prime minister Benazir Bhutto and all the uncertainties surrounding the general elections.

However, something strange has happened after April this year that the bourses are in a spiral of crisis causing the small investors huge losses. Mr Khan also called for measures to check the crony capitalism and warned that things would only get worsen if the central bank kept on increasing the interest rate.

Chairman SECP Razi-ur-Rehman informed the committee that the downwards trend in the stock exchanges had been mainly caused by a recent decision of the State Bank of Pakistan (SBP) to increase interest rate. But, he said, there were other factors, too, that had contributed towards the problems of the bourses, including the unprecedented increase in the price of oil in the international market, uncertainty over the imposition of the Capital Gains Tax (CGT) and the country’s soaring trade deficit coupled with historic inflation.

He said the commission did not want to unnecessarily intervene in the market, but had recently taken a number of corrective measures. He said lower circuit breaker was reduced from 5 per cent to 1 per cent, whereas the upper circuit breaker was increased from 5 per cent to 10 per cent.

Mr Razi said the rationale behind the introduction of the lower circuit breaker was to practically stall the market by restricting the downward trend allowing some time to investors, having open positions, to make appropriate funding arrangements and thereby providing some cooling period in the market.

As an interim measure, the SECP chief said, short selling in the Ready Market and short selling in the Deliverable Futures Market was banned. He said the bank guarantees had been allowed as margin eligible securities in lieu of cash.

The committee appreciated the measures introduced by the commission recently to stabilise the market such as introduction of the market stabilising fund, computerised surveillance and monitoring system and prohibition for brokers and their relatives to become directors on listed companies.