December 12, 2008	Friday	Zilhaj 13, 1429

KARACHI, Dec 11: The Securities and Exchange Commission of Pakistan (SECP) issued a directive on Thursday evening, asking the three stock exchanges in the country to remove the ‘floor’ from under the equity prices from Dec 15.

The apex regulator moved to pull the planks after over 100 days, since they were first placed under the main KSE-100 index on Aug 28. The market had been ‘floored’ at the index level of 9,144 points to prevent a further fall after its scary plunge of 42 per cent in four months until mid-April. The regulators had then said that their intention was to give the market a short ‘breathing space’. But that stretched on to the longest ever closure of a stock market in the world.

Analysts thought that the problems had exacerbated during the period with investors unable to seek an exit. The SECP in its directive admitted: “Despite best efforts, the market support fund, and other instruments like ‘put option’ could not be brought into operations so as to provide a soft landing. The Commission has therefore decided to restore the normal functioning of the stock exchanges.”

The SECP directive went on to warn that for a period of 90 days commencing on Dec 11, the stock exchanges and their respective boards should “not take any action which would interfere with the normal functioning of the exchanges and trading, including closure of the market or placing any restriction on the trade prices of securities, without seeking written approval of the commission”.

Analysts believe that the apex regulator tried to quash a possible broker revolt. But many market participants thought that sobriety had replaced the insanity as most individual and institutional investors had come to realise that the ‘floor’ had done more harm than good.

Grievances were many, but the big worry was regarding the investment of Rs 11 billion in the ‘badla’ (buying on borrowed money). For many days, the various stakeholders had huddled together in heated debates on how to settle the sum, but without an outcome acceptable to all. “The SECP directive makes no mention of the ‘badla’ amount,” says a broker, adding that unless an amicable way was found to roll it over for a few months, it had the potential to push at least 10-15 brokers to ‘default’.

The initial response to the SECP directive from a few of the vociferous campaigners in favour of the ‘floor’ was of quiet resignation. “Investors have no option but to swallow the bitter pill,” said one broker. But a market strategist suspected that the few interested parties had achieved their objectives by keeping the market shut for so long a time.

“The government has been able to strengthen its reserves following the IMF loan so as to meet the eventuality of foreign selling and some big participants have utilised the ‘breathing space’ to arrange funds for fulfilling their commitments,” he says.

He complained of broken promises of ‘support fund’ for the market and questions were also being raised on the handling of the entire issue by the government and regulators.

A director on the board said that it was too early to tell how the exchanges would respond to the SECP directive.