“Different countries were interested in our stock exchange,” reminisces former Securities and Exchange Commission chairman Khalid Mirza. “I met a representative, who I will not name, in Karachi. He was willing to come here, but under one condition: he will provide the system.”

Last week, Pakistan Stock Exchange (PSX) implemented the new trading system that was procured from the Shenzhen Stock Exchange, China, to replace the 20-year-old Karachi Automated Trading System (KATS). Frequent glitches and execution delays plagued Rs461.26m system in the first week of operations, prompting the temporary return of KATS.

“In the Sultanate of Brunei, the Sultan purchases Sultan’s assets through funds from the Sultan’s bank,” laughed Mr Mirza, drawing a loose comparison with China where many industries are state owned.

“It’s a different stock exchange with a different background and culture,” he said, considering the investment in the new trading system as ludicrous.

‘We need a world-class robust, error-free, efficient trading system for PSX’

“The Chinese already have a 40 per cent stake in the stock exchange. A Chinese trading platform in a stock exchange that has a significant Chinese stake makes the whole situation suspect, even if that is not the case,” he said, highlighting the conflict of interest.

Elaborating on the investor who wanted to bring in his own trading system to the PSX he said that it could be as simple as selling us a system that would use Pakistan as a testing ground before being marketed to other exchanges.

Need of the hour

“We need a world-class robust, error-free, efficient system,” says CEO of Topline Securities, Mohammad Sohail. “It is just like using an old mobile instead of a new one. We cannot say that there was big issue in the old system but we do have to consider what other countries are doing — Bangladesh exchange updated their system as well.

There were efficiency issues with KATS which would/could slow down with volume, according to the exchange. KATS was cutting-edge, top-of-the-line when it was deployed but it has become outdated, said a senior source within the PSX. With the kind of programming it has, coding for new products was not possible.

Be that as it may, the Shenzhen platform gave traders a bit of scare. “I halted my trading on the new trading system because there was so much noise surrounding it; I didn’t want to lose my capital,” says Anum Talha, a small independent investor. “Market updates were not being shown on the screen even though transactions were being processed. Prices were not being updated which was big concern,” she said, adding that she had no problems with the old system.

Monopolistic actions

Comparing India’s stock exchanges with Pakistan, Mr Mirza attributes the inefficient new system to the lack of competition. India has the National Stock Exchange (NSE) of India Limited and BSE Limited, formerly the Bombay Stock Exchange. However, there was a time when India had 23 stock exchanges that included the Delhi Stock Exchange, Calcutta Stock Exchange, Madras Stock Exchange and the Ahmedabad Stock Exchange.

“NSE gave tough competition to the other stock exchanges that were set up subsequently, forcing them to improve. This has enabled their market and trading to grow tremendously,” he said.

Anum Talha, a small independent investor agrees wholeheartedly. “Multiple exchanges would be much better for investors because there is a serious lack of proper valuations. There are stocks whose growth and earnings per share do not justify their rates. There are many shares that are in the default counter but are quoted at double or triple their value because they are concentrated in the hands of the big boys. If there was more than more exchange, investors would have more opportunities and manipulation could be limited.”

While agreeing with the need for competition, Mr Sohail believes the move would be premature at the moment. “It is too soon to have more than one exchange. But once the size of PSX grows, we may need more competition similar to India where there is more than one exchange and depositories.”

An unconfirmed whisper firmly squashed by the PSX was that KATS takes half an hour to close which makes it vulnerable to market manipulations. The new system, touted to be faster, squares up in 30 seconds which prevents nefarious activities.

Published in Dawn, The Business and Finance Weekly, November 8th, 2021