KARACHI, Sept 4: The Karachi Stock Exchange (KSE) has summoned stock brokers to a general meeting on Monday (Sept 8), which it says will “discuss the prevailing market conditions”.

The members are understood to have been called to seek opinion on the “floor-price-level circuit breakers,” which the bourse had placed on Aug 27 to prevent the KSE 100-share index from falling below that day’s scary closing level of 9,144 points.

The members deliberations 131 of the 133 of them present at the emergent meeting on Aug 27 had cast a ‘yes’ vote to the freeze is seen as a prelude to the decision of the board of directors of the KSE, expected to be taken the next day (Sept 9).

But many market participants say that in the decision to remove or hang on to the ‘floor-price-level circuit breakers,’ the Karachi Stock Exchange faces the Hobson’s choice: Damned if it does and damned if it doesn’t!

The bourse said that it had put planks under the market fall on Aug 27, following panic-selling, in order to give the bourse a “breathing time”.

Meanwhile, the equity investors and brokers have been praying for ‘good news’ on the political and economic front, which could bolster investor sentiments. None has, however, been forthcoming and a slippery rise of one per cent in the index value in 11 days following the price-freeze, spells all but insignificant recoup from the 55 per cent index loss in four months between April 20 and Aug 26.

Growing impatience of foreign investors who have been demanding free movement; no mentionable positive developments on the political and economic front; the diminishing volume of traded shares and ineffectiveness of the bottom freeze are forcing regulators to reconsider the mechanism. There could be other problems as well.

“We understand that some brokers are on the verge of insolvency and are desperate to sell some illiquid assets to meet their settlement obligations and the very same brokers have pleaded to keep the index at freeze mode”, wrote analyst Sara Shahid in her morning report for brokerage firm Elixir Securities on Thursday.

“It is being reported that the board is divided on this issue with a large group pleading to return to normal trading,” the analyst stated.

In another notice to the members on Thursday, the KSE observed: “The BoD of the Exchange in its meeting held on Sept 3 has observed that floor-price-level circuit breakers have artificially been restricting daily price volatilities in the ready market, which is causing continuous decrease in the VaR rates”.

The board had thus decided to “freeze the VaR rates as of Sept 2 for risk management purposes of the Exchange till further notice”, the KSE stated.Whatever is VaR? Analysts explain that VaR or Value at risk is the maximum amount of money that can be lost on a portfolio over a given period of time, with a given level of confidence.

VaR provides an accurate statistical estimate of the maximum probable loss on a portfolio when markets are behaving normally. VaR is typically calculated for one day time period known as the holding period. A 99 per cent confidence level means that there is (on average) a 1 per cent chance of the loss being in excess of that VaR.