KARACHI, Oct 1: Managing director, Karachi Stock Exchange, Moin M. Fudda, told the press on Tuesday that the bourse would implement system of ‘undisclosed trading’ from October 7.

Moin Fudda, who has been into the office of MD of KSE for 10 days—he was appointed on Sept 19—also set a new precedent by holding the first ever conference by the bourse’s MD (the management); previously almost all liaison with the press was done by the Board and principally by its chairman. “It would be the management’s policy to hold periodic briefings on major initiatives,” Moin Fudda affirmed.

Reverting to the subject of the day’s discussion, the KSE MD stated that the bourse had been deliberating on ways of implementing system of undisclosed trading, for some time. In this respect, he referred to an article in Dawn ebr of Monday, Sept 23 titled: “stock trading: is buyer/seller identification fair or foul?”, which he said had clearly highlighted how and why the practice of disclosed trading must be curbed. He said that he investigated the points raised and it was revealed that the disclosed system indeed encouraged speculation, comprised confidentiality of transactions and promoted front-running. “I have therefore decided to begin my term with the launch of the undisclosed trading system from October 7 for which a notification is being issued today,” he said.

Explaining the system, Moin Fudda stated that the KSE had introduced the automated trading system in 1997, which was based on “disclosed trading system”, whereby trades executed by members were disclosed, both before and after execution of such trades. Conversely, the undisclosed trading system meant that trades executed by members through the automated trading system would not be disclosed either to the counter parties or to the market participants. He said that internationally, a large number of stock exchanges follow the ‘undisclosed trading system’.

KSE general manager Yacoob Memon, who assisted the MD in explaining the importance of the new system, said that the disclosure of trading parties sparks the ‘herd culture’, as small investors watch out for who is buying and selling instead of analyzing the merits of stocks by their ‘fundamentals’, such as growth, yield, price-to-earnings ratio, return on equity (ROE), etc.

It also leaves room for ‘front-running and manipulation’. At most stock exchanges in the world, it is only after the orders have been matched and trade executed that the buyer and seller get to know who was their counterpart in a particular transaction. And a few bourses go a step further; there the identity of the buying and selling broker is not disclosed even after the trading is over; the reason being to maintain confidentiality regarding positions of the members. Moin M. Fudda, in answer to a query said that the KSE had proposed to keep the party identification undisclosed—both pre and post trading. He claimed that the entire brokerage community was supportive of the proposed system of undisclosed trading.

To a question about expansion of the market base from current lows of $7.6bn in capitalization, the KSE MD said that he had set it as one of his priorities to bring large corporates into the KSE fold. He also talked briefly about his “corporate plan”, which he said included enforcement of regulations; strengthening the market and improving technology.

The KSE MD was asked about the mandatory 10-day holding period of ‘badla’ financing by the financiers. Yacoob Memon said that the KSE board had already approved the proposal and sent it to the SECP, whose reply was awaited, before it could be implemented.