KARACHI, Oct 11: A meeting between the representatives of the Securities and Exchange Commission of Pakistan (SECP) and the Karachi Stock Exchange (KSE) at the residence of chief regulator, Razi-ur-Rehman Khan on Saturday, went into vigorous discussion on why the stock market ought to be closed for a limited period.

Sources familiar with the matter said that the major reason, forwarded by the KSE was the fear of a market crash due to complete dry up of liquidity following Friday’s decision by badla financiers to halt release of fresh funds. The meeting was adjourned till Sunday (today) for ‘further discussions”.

But some people in the knowledge of things said that regulators had reached an agreement to close the market for at least 10 trading sessions from Monday, till October 27.

“The final decision rests with the government and the go ahead signal from Shaukat Tareen is awaited before announcement of the regulators’ resolution,” said an insider in the knowledge of things.

Mr Tareen, the newly-appointed adviser to the prime minister on finance, is in Washington to attend World Bank/IMF meetings and to hunt for funds for the country, faced with grim financial crisis of low rupee value and depleting dollar reserves.

With new developments surfacing in the stock market on Friday, spelling a crisis in the CFS or badla (money borrowed for equity investment) market, the major issue of the removal of ‘floor’ was pushed behind.

The KSE had put a floor on Aug 27 at the index level of 9,144 points to prevent further fall, after the stock market plunged by 41 per cent in four months from April to August.

A meeting of the board of directors of KSE was scheduled for Monday, mainly to set a date for the removal of the ‘floor’. It could not be ascertained if the meeting would take place, regardless of the market remaining open or closed.

But several analysts said that the ‘floor’ was now not an option, but a necessity. “If the index was feared to take a plunge of 20 per cent following the removal of the floor, now with the crisis in the CFS market, traders dreaded a plunge of 35 per cent or more”.

But between the retention of the floor and the closure of the market, one insider said that the regulators were also considering a proposal to revert to the lower circuit breaker (the maximum sum that a stock could lose in a day) to one per cent from the normal 5 per cent.

The market eagerly looked towards the government for a bailout package in the form of liquidity and a stock broker said that official assurances may have been received by the regulators for Rs20 billion stabilisation fund, before removal of the floor.

Would that be enough? A major stock broker who had shepherded large number of brokers to the members meeting on Friday laid the blame for the market turmoil, squarely at the door of the State Bank of Pakistan. “Look, this is the result of a so-called tight monetary policy,” he growled.

The volume of trade at the KSE sinking to a million shares or less a day in contrast to the average daily turnover of 210 million shares in the previous 12 months and the wealth accumulated over the past six years of a bull run dissipating fast, most brokers displayed frayed nerves.

The main asset of a broker, the membership card had also lost the gloss, dipping to a value of Rs80 million, from Rs145 million five months ago. The major broker on Saturday demanded a cut in discount rate by 4 per cent and banks’ requirement of CRR by 2 per cent to tide over the liquidity difficulty.

On the last trading session on Friday, panic had gripped the market as ‘badla’ rate (at which investors borrow money) rose to a peak of 100pc 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 that day, 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 was 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. The broker fraternity was demanding a freeze such as had been placed on the redemption of open-end stock market funds.

Financiers also had inarguable reason for withdrawing badla on the ground that in the current market situation, “price discovery” was impossible.