KARACHI, Oct 8: The freeze on pricing, issuance and redemption of units of open-end mutual funds with direct exposure to equity market imposed by the Securities and Exchange Commission of Pakistan (SECP) would not apply to the money market (funds), which could continue to do business as usual, a source at the top regulator’s office said on Wednesday.

He reiterated that the circular issued by the SECP on Tuesday, suspending the business of open-end funds, was meant “to protect the interests of the unit holders who wished to hold their investments in mutual funds as opposed to those investors wishing to take advantage of the current “Floor” at the stock exchanges and the unexpected movement of prices of securities on removal of the “Floor”.

The source said that subsequent to the introduction of a “Floor” on the equity prices at the stock exchanges, it had become increasingly difficult to discover fair market value due to lack of interest among buyers, thereby justifying the temporary suspension of dealing in units of open-end schemes.

The open-end schemes are under obligation to value listed securities at closing prices. The existence of the Floor inherently carries the disadvantage of price distortion leading to unfair valuation. Open-end schemes allow unit holders to redeem their investment at any time. The source stated that with a “Floor” in the exchanges, excessive redemption pressure in the current market conditions could have led to borrowing by mutual funds to meet redemption requests, thereby imposing additional financial burden on ill-informed and long-term investors.