October 08, 2008	Wednesday	Shawwal 08, 1429

KARACHI, Oct 7: The Securities and Exchange Commission of Pakistan (SECP) on Tuesday directed that “pricing, issuance and redemption of units of open-end mutual funds having direct exposure to equity markets, be suspended with immediate effect”.

Analysts said that the decision of the apex regulator conveyed through a circular would be applicable to open-end funds, which are thought to hold around Rs240 billion of assets under management, including those of money market funds.

By virtue of the decision, National Investment Trust (NIT) with Rs80 billion of 52,000 unit holders would also cease to price, issue and redeem units.

The SECP said that the step was taken to “protect the interest of unit holders” and after review of the “prevailing situation and the request by the Mutual Fund Association of Pakistan (MUFAP)”.

Mr Tariq Iqbal Khan, chairman and MD of NIT, the largest mutual fund in the country, told Dawn that he had gone along with the MUFAP decision and clarified that NIT had no issue with redemptions. “We have received redemption requests for only Rs1.5 billion of the Rs80 billion under management”, the NIT chairman said.

Justifying the freeze, the SECP explained that subsequent to the introduction of ‘floor’ on the equity prices at the stock exchanges, the market volumes had drastically declined leading to difficulty in discovery of fair valuation of equities. MUFAP held an emergency meeting on Oct 6 “to review this extra ordinary situation”.

The Association noted that there was serious possibility of unfair treatment to the unit holders of mutual fund who wished to continue to hold their units relative to those who wanted to redeem during the period that the ‘floor’ at the stock exchanges existed.

The SECP order stipulated that suspension of dealing in units would continue till the third business day after the ‘floor’ is removed at the stock exchanges.

The SECP issued order to the effect that the asset management companies (AMCs) with direct exposure to equity securities would deal with the applications received for issuance or redemption of units during the intervening period on the basis of closing price of third day after removal of the floor; and that AMCs would resume dealing in the units for applications received after the third day of removal of the ‘floor’.

Mr Nasim Beg, chairman MUFAP, told Dawn that all mutual funds had been taken on board before passing over the recommendation to the SECP. The SECP representatives also participated in the MUFAP meeting that lasted late into the evening on Monday.

He said that the objective was to be fair to all unit holders. Mr Beg denied that there was any run on redemption. But another fund manager observed that MUFAP feared large-scale redemption during the few days between the day of announcement of removal of the ‘floor’ and the date on which the planks would actually be pulled, since the general market perception was of a steep drop in equity values following the ‘floor’ removal.

Mr Beg said that the period of three days post ‘floor’ was decided to let the market seek its level, which would enable ‘price discovery’ before the normal operations could be started.

Analysts said that the freeze on pricing, issue and redemption of units was in consequence of the KSE’s Aug 27 decision to put a ‘floor’ under the KSE-100 index level of 9,144. The KSE’s decision was prompted following a fearful fall of over 6,000 points or 41 per cent in equity values in four months between mid-April and August.