KARACHI, July 19: The high-powered committee set up to look into the problems of the stock market is investigating “conflict of interest” in the market. The committee headed by Shaukat Tarin who is chairman of Pakistan Banks Association met here on Tuesday at Karachi Stock Exchange and set up four working groups to suggest specific steps to steer the stock market out of crisis. The Karachi Stock Exchange (KSE) 100-share index fell to 7,320 on Tuesday from an all-time high of 10,078 on March 16 showing a decline of more than 27 per cent.

This has reduced the cumulative value of the stocks traded on the KSE by Rs666 billion or 24.5 per cent in a little over four months to Rs2,049 billion on Tuesday from Rs2,715 billion on March 16.

Sources privy to the meeting said the most important working group formed by the committee was the one that would investigate what conflict of interest is there in the market — who are the market players with conflicting interest and how that conflict could be contained to run the market smoothly.

Shaukat Tarin, when contacted by Dawn, only confirmed that his committee had set up four working groups that are supposed to give their recommendations within two days. He declined to make any more comment saying it would be too premature to elaborate on such things.

But sources privy to the meeting told Dawn that the need to set up a conflict of interest working group was felt because the Tarin committee was of the view that a clash of interest between various brokers and office-bearers of the KSE was taking its toll on smooth functioning of the market. They said the findings and suggestions of this working group would be crucial in ascertaining the reasons for the stock market crisis and tackling it in a professional manner on the short- to long-term basis.

The Tarin committee has established another working group that is supposed to assess the amount of liquidity required to be pumped into the stock market for its early revival and sustainable progress.

Stock market players, bankers and bourses regulators all have different estimates of the amount of liquidity required for the revival of the stock market varying between Rs30 billion to Rs100 billion.

A third working group set up by the Tarin committee is the one that would suggest the need for new products in the stock market and develop their models. The fourth group would recommend ways to manage and mitigate risks associated with each of these products.

Sources privy to the meeting said that the Tarin committee has asked all the four working groups to submit their findings and recommendations in sealed envelopes by Thursday. The committee would incorporate these findings and suggestions in its initial report that it hopes to submit to the Adviser to the PM on Finance Dr Salman Shah by Saturday.

Last Saturday, Shah and State Minister for Finance Omar Ayub had asked the committee to look into the reasons of the crisis in the stock market and offer short-, medium- and long-term solutions to these problems.

Lender of the last resort: The committee is also looking for ways to see who could be the lender of the last resort for the stock market — as the central bank is for the banks. The committee has asked all the four working groups to keep this in mind while offering their recommendations and look around the world to see which institution plays the role of the lender of the last resort for stock markets.

Traditionally banks have bailed out Pakistan’s stock market at the time of crises by pouring into it billions of rupees but this time around it is not only the liquidity crunch that has been at the heart of the problem: the market is suffering more perhaps due to what the Tarin committee calls conflict of interest.

This impression gets reinforced when one talks to the elected and administrative office-bearers of the KSE and high officials of the Securities & Exchange Commission of Pakistan. All of them lay blame at each other’s doors for the present crisis in the stock market.

As for conflict of interest among stock brokers and brokerage houses, it is but natural and is must for their very survival and competence.