LAHORE, Oct 27: The Securities and Exchange Commission of Pakistan’s directive, limiting the badla or carryover transaction (COT) to 30 companies from December 15 will not result in any significant re-balancing of portfolios by investors by way of adjustments.

This was stated by Lahore Stock Exchange managing director Samir Ahmad while speaking to Dawn here on Monday. He appreciated the SECP directive, restricting COT transactions to 30 companies to prevent badla trade in illiquid shares.

He said the LSE had already moved in this direction in December 2001 when it restricted badla to 36 of the most liquid companies. Subsequently, he said, National Bank of Pakistan was added to the list after its listing and currently the LSE allowed badla in 37 shares. “The LSE took the decision from the point of view of improving its risk management after a consideration of previous crises in the country’s stock markets which, more often than not, were caused by massive badla, especially in illiquid shares,” he explained.

The LSE has probably suffered reduced volumes viz-a-viz the Karachi Stock Exchange and the Islamabad Stock Exchange because of its decision to restrict badla to 37 scrips only. “However, it is clear that it is largely due to these steps that we have not been affected by several crisis-like situations in the past two years,” Mr Ahmad said.

He was also appreciative of the timing of the SECP directive, saying it had come at a time when the total quantum of badla had gone down significantly in the past six weeks or so. “The total badla volume at the KSE has come down from about Rs25 billion to Rs12-13 billion. Similarly, the total quantum of badla at the LSE has fallen from Rs3 billion to Rs1.5 billion in the same period. Hence, it is not expected that the directive will result in any significant re-balancing of portfolios by investors by way of adjustments,” the LSE managing director said.