Karachi, Oct 10: As the crisis at the stock market looked to be heading towards catastrophe, the Board of Directors of the Karachi Stock Exchange would hold a meeting with the Securities and Exchange Commission of Pakistan (SECP) to discuss a complete closure of the stock market from Monday, a member director said.

Razi-ur-Rehman Khan, the chief watchdog, told Dawn in reply to queries that he would wait to see what turns up in the talks with market participants on Saturday, adding: “The market is already virtually closed.”

Since the fixing of a ‘floor’ under the market fall of 9,144 points on Aug 27 by the KSE, there has been scant trading, with abysmally low volumes sometimes just under a million shares, compared to an average daily turnover of 186 million shares until April.

Stocks started to tumble that month, losing 41 per cent of index value in four months until the ‘floor’ was put under the fall on Aug 27.

On Friday, panic gripped the market as the CFS or ‘badla’ rate (at which investors borrow money) rose to a peak of 100 per cent in many scrips and financiers brought lending to a halt. Market participants said that such a situation could choke the CFS market of liquidity, leading to large-scale defaults, which was why most brokers thought that closing down the market altogether was the best option available.

Earlier in the afternoon, more than 100 brokers who met in the trading hall of the KSE, demanded the freeze on ‘badla’, both in respect of the amount and the rate till such time that the ‘floor’ on the KSE index is removed. “Average badla rate on Thursday was at 7-year high at 63 per cent. “The brokers’ demand was to freeze badla rate at 24 per cent”, a meeting participant said.

Late in the evening the National Clearing Company Limited (NCCPL)—the body that manages and monitors the badla--after a marathon meeting with some broker representatives decided to forcefully roll over for one day the Rs700 million badla that the borrowers were unable to secure. It was hoped that the effort would calm down fears in the CFS market. The broker fraternity was demanding a freeze such as had been placed on the redemption of open-end stock market funds. And the demand stemmed from a few developments, which most market participants and analysts thought were most unfortunate. On the one hand financiers had put a halt on fresh badla financing on the ground that in the current market situation, “price discovery” was impossible.

The latest figure of CFS showed a balance of Rs 12 billion, which though considerably lower that its April peak of Rs 54 billion (maximum allowable limit), still was large enough to have trapped many investors.

On top of that, a market participant said that brokers had received notices from their bankers on Friday, stipulating that there would be no further financing available against stock securities. “This is a clear violation of the commitments by the banks,” said an infuriated broker.

Banks had no right to suspend financing if they had committed to lending a certain sum, he said, adding that they could raise the margin from 30 per cent, if they so wished.

The market was also scared stiff by the news of default of a stock broker. But a market manager said that the member had not defaulted but was merely suspended by NCCPL for non-clearing of dues of Friday.

In case a member defaults, assets would be placed on auction block; the main item being the membership card, which is now valued at Rs 80 million, showing a steep decline from a high of Rs 145 million five months ago.