KARACHI, May 23: Shares at the Karachi Stock Exchange suffered a massive fall on Monday, as the KSE-100 index plunged by 317 points to close below the 7,000 barrier. Nearly $1.4 billion were wiped out of the market capitalization, which stood at $33 billion.

The morning session began in a state of confusion. The proposal by the CBR that Capital Value Tax (CVT) was to be doubled from 0.01 per cent to 0.02 per cent in the budget for financial year 2005-06, along with rumours of a couple of other levies threw the market in a state of panic.

Already sitting heavily on investors’ mind are the concerns over COT phase-out and interest rate hike. But the factor that triggered all-round selling on Monday was the announcement by the KSE board that its proposal of raising per scrip position of a member from one to five per cent of its free float in futures market had been rejected by the Securities and Exchange Commission of Pakistan (SECP). Trading in June future contracts began from Monday. The PTC, the PSO, the PPL, the OGDC, the NBP and all other heavyweights hit their lower circuit breakers, providing no opportunity to the small investor to exit. The event was reminiscent of the mid-March crisis.

Chairman KSE Yasin Lakhani told Dawn that a marathon meeting was held at the State Bank of Pakistan, where chairman of all three stock exchanges, governor SBP, representatives of banks and Commissioner SECP Shahid Ghaffar participated to discuss the margin financing programme. Margin financing is to replace the COT ‘badla’, but most stock brokers contend that the market is not yet ripe for an early change. The KSE chairman thought that the future rules should not be made so ‘stringent’. Commissioner Shahid Ghaffar was not available for comments, but the market thought that the SECP and KSE were in a state of tussle.

“Why a letter written by the KSE to the SECP on May 7 asking for increase in free float was not answered till May 22,” asked an irate broker. But another holding the side of the SECP argued that the commission had called the KSE board for a discussion on the issue on May 3, but the bourse did not respond.