October 14, 2008	Tuesday	Shawwal 14, 1429

KARACHI, Oct 13: Financial institutions, including banks and mutual funds, agreed to keep the CFS market fluid by fulfilling their commitments and continuing to provide funds from Tuesday onwards, Securities and Exchange Commission of Pakistan chairman Razi-ur-Rehman told Dawn after a marathon meeting on Monday of the SECP, KSE and National Clearing Company, with a dozen banks and over half a dozen mutual funds.

The trouble at the stock market was exacerbated on Friday following the financiers’ decision to halt flow of new funds into the CFS or ‘badla’ market (that lends money for equity investment) on the perception of rising risk.

Mr Razi said the regulators had managed to persuade institutional investors that without the committed funds the market would be starved of liquidity and that would endanger the financial system. He said that confidence was created in the minds of managers of the institutions by pointing to the tightening of the risk management system.

“After discussions, the banks and mutual funds gave an assurance that they would not withdraw funds and carry on with their current commitments in the CFS market from Tuesday,” the SECP chief said.

Brokers estimated that with three days ‘rollover’, the CFS market would require an injection of about Rs2 billion on Tuesday. The big question on everyone’s mind was: would the funds actually begin to flow in?

Mr Razi was hopeful of a positive outcome. By 8pm in the evening on Monday, the market was understood to have already received Rs70 million. The SECP chairman said that a team of regulators would be meeting stockbroker financiers in the evening to make an effort to take them on board.

Mr Adnan Afridi, managing director of the KSE, provided similar details about the Monday meeting. He said that the board of directors of the KSE had to skip its scheduled meeting as the talks with financial institutions had continued the whole day. He admitted that the question mark was on whether or not the committed funds would arrive in the market on Tuesday.

In case of non-provision of the committed funds, the SECP and KSE would put their heads together on Tuesday to consider other options on how to deal with the current market situation, Mr Afridi said.

The balance amount in CFS now stands at Rs12.5 billion which, though less than a quarter of its high of Rs54 billion in April, was still huge for a market in turmoil.

Mr Razi thought that the settlement of liquidity issues in the CFS would provide the entire market a space for soft landing.

Nasim Beg, chairman of the Mutual Funds Association of Pakistan, said that equity mutual funds with surplus cash would lead to financing in CFS rather than income funds as the latter were averse to taking potential equity risks. He also said that since the risk management had improved with the demand of 10 per cent additional margin from financees, mutual funds (in their individual capacities) had committed to provide funds for CFS.

Mr Beg stressed that the SBP should consider providing liquidity to the capital markets by reducing the CRR and SLR requirements for banks by two per cent as was the demand of the market.

NEW FUND: In a related development, the National Investment Trust, Pakistan’s largest mutual fund with Rs80 billion under management, has started work on setting up a new fund of the size of Rs20 billion for equity investment. It will be called the “Pakistan State Enterprise Fund (PSEF)”.

Informed sources said that Mr Shaukat Tareen, Adviser to the Prime Minister on Finance, had assigned the task of formation of the fund, seeking approvals and sorting out legal issues to Tariq Iqbal Khan, chairman and managing director of the NIT and a seasoned fund manager who also operates the Rs20bn Stock Market Opportunity Fund. Mr Tareen is believed to have given an assurance of providing sovereign guarantees to contributors to the upcoming fund.

The sources said the government wanted the fund to be ready for investment in equity markets by Oct 27 -- the date on which the regulators appear to have decided with the consent of Mr Tareen to pull the planks from under the ‘floor’.

Meanwhile, in a written answer to a query, Mr Tareen told Dawn from Washington on Monday: “I have no personal enmity with anyone. The SECP will decide what to do with the market, not me. We will do whatever we can to help”.

Mr Tareen had earlier expressed his disapproval of ‘floor’ at the KSE which had frozen the stock market to a level of 9,144 points since Aug 27.

He had also set aside on Sunday a proposal by stockbrokers to close down the market from Monday. But with just 25,000 shares traded on Monday, in sharp contrast to an average daily volume of 185 million shares in the previous 12 months, the market was reckoned to be virtually closed.