THE powers of the Securities and Exchange Commission of Pakistan have been strengthened as a result of the new Futures Markets Bill just passed by the National Assembly, but such a move will be useless if the regulator lacks the will to actually use the new provisions of the law.

The new law allows the regulator to cancel the licence of brokers who fail to maintain adequate liquidity to discharge their obligations on the settlement date of their contracts, amongst other things. In reality, everyone knows that the power of the big brokers permeates the regulator and inhibits the use of such penal clauses, even in cases involving far more serious breaches of the law.

When a former chairman of the SECP, acting more autonomously, served large numbers of notices to clients for insider trading, for instance, he found himself engulfed in adverse rumours to the extent that the continuation of his tenure was effected.

The futures market in Pakistan is very small, and not likely to grow simply as a result of this law. Most trading is concentrated in more bread-and-butter stocks, with a particular focus on a small number of energy scrips.

For the futures market to genuinely grow, upgrading the regulatory framework is only a small step, albeit an important one. There must be a wider demand for broadening the capital markets in the country, driven largely by the investor community themselves.

Thus far, this community has preferred to stick to the status quo rather than venture out into innovative new products, such as commodity futures which were introduced many years ago. There is no reason to believe that the new law will change this.

As a start, the government can follow up on the new legislation by appointing people at the SECP who are serious about cleansing the stock market of all kinds of dealings that serve to swindle investors, than standing by the actions of the regulator when the inevitable reaction arrives.

Published in Dawn, March 18th, 2016