KARACHI, Dec 3: Investors, brokers and traders at the Karachi Stock Exchange received a rude shock on Wednesday afternoon when the Securities and Exchange Commission of Pakistan (SECP) told the KSE board of directors to stop looking out for the ‘market support funds,’ which were not to come.

The apex regulator held a meeting late in the evening with the boards of directors of the three stock exchanges.

KSE MD Adnan Afridi told Dawn that the SECP had asked the bourses to submit proposals by Friday on when and how to open the market in the light of the fact that the ‘support funds’ were not forthcoming. He said that the exchange would begin work on various options on Thursday.

Earlier in the afternoon, in a flurry of activity the KSE board went into debate, followed by consultations with two of the top trouble-shooting stock brokers. The KSE also called an emergency meeting of the members to discuss the issue.

The air was thick with anxiety as concerns were raised by the members. Most brokers thought that they had been betrayed by the government by leaving the markets high and dry after repeated assurances that a ‘support fund’ of Rs20 billion and another ‘put option’ of the value of Rs30 billion were on the way by two top finance managers of the government, Syed Naveed Qamar and Shaukat Tarin, both of whom had visited the KSE and extended comfort to

the investors.

“Only two days ago, we were told that the fund manager had been able to cobble together commitments of Rs5 billion each from two of the four institutions, Rs2.5 billion from the EOBI and a commitment of Rs7.5 billion from 17 banks,” lamented one stock broker.

A few directors and senior brokers said that the SECP was just conveying directives received from the government, believed to have originated from the IMF, which was averse to government guarantees on the proposed Rs50 billion market bailout package.

A senior broker said that the development had followed receipt of IMF documents that described the policies and targets that the country would implement to avail financial support. Regarding the price ‘floor’ at the market, the document stated: “The government believes that market confidence will improve significantly once the fund-supported programme is approved and the international reserves position is strengthened. Therefore, it does not intend to remove the current floor on stock prices until after the programme is in place. In any event, the timing and terms under which the floor on stock prices will be removed, including any use of public funds to support the stock market, will be decided after reaching an understanding with fund staff.” Analysts interpreted it as clearly specifying to the regulators the necessity to consult IMF staff regarding the timing of lifting the floor.

Brokers and analysts admitted that the problems for the market had multiplied since the imposition of ‘floor’ under the KSE-100 index on Aug 28 to prevent its further fall. “The chief worry,” said one director “is regarding the Rs11 billion still in the ‘badla’ market”. There were concerns that a large number of brokers might not be able to pay the margins due to possible client defaults and drying up of flow of liquidity from banks. Most ‘blue chip’ stocks were already trading at around 30 per cent discount in the ‘off-market’ trade, which analysts said was an indication of weak investor sentiments.