KARACHI: Investors at the stock market seemed to take in stride the suspension of KASB Securities Limited (KSL) as the benchmark KSE-100 index not only shot up to new highs but also reflected increase in volume on Tuesday. “That is significant considering that the beleaguered brokerage house is among the oldest and a favoured house commanding 15pc of the local and around 20pc of the foreign business,” said several brokers.

Yet, the brokerage KSL moved quickly to comfort its customers by sending a notice to each assuring that their “shares and cash are safe” and that they could fill up a form for transfer from KSL to sub-account of another broker”. Investment banker, Mir Mohammad Ali and several other market participants concurred that since the final custodian of funds was the Central Depository Company (CDC), the shareholders could transfer their shares in account with another broker. Yet a detractor who asked not to be named mused that although no systemic risk looked likely for the market it was difficult to say if problems might arise on client-wise settlements.

The Securities and Exchange Commission of Pakistan issued directives to halt the trading facilities of KSL at the KSE and Pakistan Mercantile Exchange Ltd (PMEX) from Nov 18 till further orders.

“It has been done after the State Bank of Pakistan (SBP) imposed a six-month moratorium on KASB Bank Limited (KBL) effective Nov 14, 2014,” the SECP said in a handout on Tuesday.

Explaining the purpose of closing the doors of business on KSL, the SECP said that the brokerage house is a majority owned subsidiary of KBL and it uses the bank as the ‘settling bank’ for the purpose of settlement of transactions executed at KSE.

“On Nov 14, KSL had a deposit of over Rs361 million with KBL primarily pertaining to its clients, while KSE had deposits of more than Rs174 million at KBL which represented margins deposited by the KSL against trades executed at KSE,” the SECP said and added that due to the imposition of moratorium by SBP, the solvency and liquidity of KSL had significantly deteriorated, creating systemic risk for the market. “The net capital balance certificate of KSL as of June 30, 2014 reflected a net capital of Rs267m,” the chief regulator said and observed that after the restrictions on the bank deposits with KBL, the net capital of KSL has declined considerably.

The SECP said that its action was aimed at “upholding the smooth and interrupted operations in the securities market and to avoid a consequential financial crisis.”

It also highlighted that the quantum of client securities held in KSL custody as around Rs160bn. “Investors are advised to contact the management of the KSE and CDC for recovery of their cash amount and transfer of securities from KSL respectively,” the SECP statement recommended.

In reply to queries, Zafar Abdullah, Commissioner Securities Market Division at the SECP told Dawn that the SECP had halted trading facilities at the KSL to maintain the confidence of the investors in the securities market and to ensure adequate protection for such investors.

“The SECP resolves it commitment to protect the interest of the market participants, preserve the integrity of capital market and enhance the confidence of investing public in the securities market,” said the commissioner.

Market participants generally appreciated the SECP move, though the shareholders could not dismiss their unease over the security of their savings and investment. “It is all murky at the moment and a clear picture could emerge within this week”, said a responsible person at the market.

Published in Dawn, November 19th , 2014