KARACHI, Sept 9: The board of directors of the Karachi Stock Exchange (KSE) on Tuesday decided to keep the ‘floor’ mechanism in place, which keeps downside capped, until next review on Sept 25.

An emergency meeting of the board on Tuesday endorsed the earlier day’s recommendation of the general body of members to let the ‘floor’ be.

The board had placed curbs on stock prices from falling below the Aug 27 closing.

By virtue of the ‘floor mechanism’, the stocks could rise and fall with the downside capped at index level of 9,144 points.

That the directors would go along with the general body of members was a foregone conclusion. Most big brokers were understood to have pressed for the continuation of the flooring system, for their own sake as well as dozens of other small stock brokers. In the face of frequent margin calls, they needed time to sort out the mess caused by a sharp plunge of 42 per cent or over 6,000 points in the index in four months between April 20 and Aug 27.

The KSE did not say if there was a dissenting vote on the board, which constitutes member directors as well as those appointed by the SECP. But the apex regulator and its nominated directors were believed to be keeping themselves aloof from the process on the plea that the step was essentially taken by the bourse under its ‘discretionary powers’ conferred by the regulations.

Announcing the board’s decision to go along with the flooring mechanism, the KSE on Tuesday listed “some progress” on the following matters: (i) providing ‘cooling period’ to market participants, (ii) facilitating buy-back of shares by listed companies, (iii) reforming of CFS Margining System and (iv) providing institutional / liquidity support (e.g. Equity Market Opportunity Fund and other sources) to the market.

During the 10 days that the ‘floor’ had been placed under the fall, the stock market had pulled back by 136 points or just about 1.5 per cent until Tuesday, which analysts thought was minimal. Cash rich companies were yet to come out in big numbers to benefit from laxity in the rules provided by the regulator, governing the ‘buy back’ of their own shares or ‘treasury stock’. And many brokers complained that the Equity Market Opportunity Fund (EMOF) of Rs20 billion managed by the NIT, was taking its time to enter the market for aggressive buying. The EMOF managers have been reiterating that the fund would wait for ‘opportuniies’, which provide its contributors good return.

But in all fairness, analysts believed that putting planks under the index level of 9,144 had done the market general good, though at the consternation of some foreign investors, who were demanding free movement.

The board said on Tuesday that it would “review progress and announce a date for removal of ‘floor’ in its meeting on Thursday (Sept 25).”

Analysts concluded that going by the lunar calendar, the freeze is likely to continue all through the month of Ramazan and investors would have more ‘cooling time’ during the Eid holidays.