Settlement guarantee fund

ISLAMABAD, Oct 11: While Islamabad and Lahore stock exchanges have approved establishment of a Settlement Guarantee Fund covering all the three stock exchanges to be managed by NCCPL, the Karachi Stock Exchange has strongly opposed the idea of any centralised bailout fund.

The basic idea behind the establishment of settlement fund was to bring transparency in the trading and clearing systems after the demutualisation of stock exchanges and provide protection to the investors under the new market scenario.

The Settlement Guarantee Fund would be utilised in case of default of any broker of the three bourses.

The Securities and Exchange Commission of Pakistan (SECP) has asked the boards of exchanges to approve establishment of a settlement fund under the patronage of National Clearing Company of Pakistan Limited (NCCPL), since this agency is responsible for settlement of all trades done by the brokers.

The ISE board has approved the establishment of the Settlement Guarantee Fund, and the ISE management has agreed to transfer around Rs5 million from the Members Protection Fund.

The LSE has also agreed to the SECP plan, but the main hurdle is to convince the KSE, which exercise a key role among the capital markets.

“We have collected Rs3 billion in the head of Clearing House Protection Fund and this money belongs to our members,” said Yasin Lakhani, director KSE. “Why do we shift this money on bureaucratic decisions?”

He added that the KSE has its own dynamics and not aligned with the situation in Islamabad Stock Exchange.

“If it rains in Islamabad – we will not carry umbrellas,” Mr Lakhani said. “We have given risk management guarantees to the SECP about the conduct of our members.”

However, he added that in case of frauds and other gross irregularities the main responsibility to control the proceeds lies with the NCCPL and the SECP.

Meanwhile, an SECP official talking to Dawn expressed confidence  that the KSE would be convinced and a segmented Settlement Fund would be established soon.

It is expected that a SECP team will precede to Karachi next week.

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