KARACHI, Aug 30: The planks plastered by the Karachi Stock Exchange under equity values on Thursday to prevent a further dip in values and an index descent down the 9,000 level has been criticised by many market participants as a violation of free market mechanism.

Dissidents are avoiding to show displeasure over the measure in public, but privately they concede that it does amount to putting curbs on market performance.

Many traders at major brokerages confided that the foreign investors are particularly furious.

“They ask for a contract to be shown where they were warned that the doors can be shut tight to prevent their exit from the market,” said one equity trader.

No one denies that the country’s equity markets have witnessed one of the most destructive bear rampage in 10 years, with most stocks in the index left with only one-half their value, prevailing four months ago.

The market has lost more than Rs 1.3 trillion in market capitalisation with 6,000 points off the KSE-100 index high of 15,700 points in mid-April.

Was that an enough reason for the stock exchange to restrain a further fall? “131 of the 133 members of the exchange present at an emergency meeting held on Wednesday extended their approval,” says a stock broker who believes the step saved the market from a disaster.

The board of directors of the exchange endorsed the members’ decision, but it was never known if the apex regulator—the Securities and Exchange Commission of Pakistan -- also gave its consent.

The interesting information gathered from various sources was that the SECP did hold marathon teleconference with the stock exchanges throughout the day on Wednesday, but finally at mid-night it saved its soul by asking the exchanges to use their own ‘discretionary powers’ to go ahead with the proposed move. But was it the interest of investors that the exchange sought to protect by putting the floor under the market fall?

Some of the market participants suggested that the step had been inspired by a few big brokers who were weary of paying extra margins to the clearing house, as stocks continued to dive.

“Unguarded stock brokers had allowed their favoured investors to trade at even five times their deposits,” said one such critic, adding that the persistent decline led to margin calls and a souring of broker-client relationships.

On the worst side, some oldies at the market suspected that foreigners had been short changed, by blocking their exit and entering into off-market deals at substantial discount to the quoted prices.

“If such was the case, would a foreign investor ever look towards our equity market?” asked an irritated small time broker.

But Haji Ghani Haji Usman, a former director on the KSE and an influential stock broker, termed the tirade and diatribe against the major players as “unfair and sheer nonsense.”

He said that exit was anyway not available to investors, including the foreigners, since lower locks were clamped on the share prices at the start of trade because of panic selling.

He said that the losses of even foreigners had been arrested by ‘floor’ and they ought to be happier for that.

Haji Ghani said a further fall in the market would have put 30 to 40 members under discomfiture.

Those talking against the market now had reaped rich returns in the last six years and now that the going had gone tough, they blame everyone but themselves.

He said that when the market goes down, a leveraged buyer suffers on three counts: He has to pay members commission; price difference and bank interest on borrowed money.”

Haji Ghani was confident the market could settle down in about a week, following some improvement in economy as a result of recent government measures; the settling of dust on the political front after the Presidential elections and a stability in the value of rupee. The stock broker also hoped that law and order situation in the country would improve as the army had gone into offensive to establish the state’s writ. And he also pointed to market fundamentals which were exceedingly attractive.

Many other market pundits were cautiously optimistic about the future direction of the market, when finally it was left to itself.

“Being the biggest stakeholder in the stock market, the government should come to its rescue,” said one member.

He pointed out that the government held 23 per cent of market capitalization in OGDC and majority holdings in many blue chips, such as PSO, PPL, HBL, UBL, NBP, Kapco and others, which should be reason enough for the government to bail out the bourse. Mr Ghani reckoned that liquidity of Rs25 to Rs30 billion was only needed to put the market back on the rails. Foreign investment, he said, should not be depended upon, for it flies out as quickly as it enters. That does no help country’s industrialization and only drains it of resources, when the foreigners pull out, he said.

“Dependence should be wholly on local investors,” said Mr Ghani, adding, “let the goras go to get oil!”—whatever that means.