ISLAMABAD, June 14: The government has decided to strengthen the legal and judicial structure of the Securities and Exchange Commission of Pakistan (SECP) aimed at restoring the investors’ confidence in the capital market.
Informed sources told Dawn the higher authorities had taken serious notice of the stock market operations that led to the loss of billions of rupees especially of small investors.
The World Bank has tentatively agreed to extend financial and technical support in this regard. The SECP’s capabilities would be strengthened through exposure to the latest international trends in regulation of capital market, mutual funds, insurance companies, non-banking financial sector and the corporate sector in general, and the skills of professional service providers would also be sharpened.
The objectives were to enhance the SECP’s abilities to better manage its own resources and to be more effective in policy making and improve its capacity to support the rule of law by enhancing the potential of the professionals.
The purpose, the sources said, was to have effective capital market system that serves as a catalyst to long-term growth and one that ensures protection of interests of all share-holders.
The government wanted to reinforce the enabling investment climate in the country through evoking faith in the capital market, better governance, improved risk management, enforcement of corporate and security laws, while maintaining adequate protection of investors’ interests.
The share prices of Karachi Stock Exchange (KSE) registered a significant growth during July-April 2004-05 as investment from overseas Pakistanis flowed in and low interest rates increased participation from the banks, individuals and financial institutions. The privatization policy of the government also played a significant role in boosting the capital market. The KSE 100-share index reached the record level of 10,303.13 mark with the highest market capitalization of Rs28.1 billion on March 15, 2005, and then started declining and the institutions lost about Rs640 billion in the process.
The sources said that the government’s policy of offloading shares of the profitable state sector corporations through stock market could face setback if the element of transparency was not ensured by the SECP.
In order to provide benefits to the general public the government has approved divestment of the state sector assets through stock exchanges. Accordingly, shares of many profitable corporations and companies including OGDCL, PSO, PPL and Kapco were floated. Public response to the divestment was enthusiastic and government thus realized billions of rupees during July-May 2004-05.
These transactions through stock exchanges would further enhance the market capitalization and deepen the market base, provided the SECP, the sources said, adequately monitor the day-to-day situation in the capital market.
Deterioration in the quality of civil services, absence of a career grooming system to prepare civil servants for higher responsibility, inadequate training system and under investment in human capital, weak capacity and service quality of public institutions, poor compensation structure, weak public financial and economic management, poor tax administration, inadequate monitoring and evaluation of public expenditure and weak capacity of regulatory agencies were some of the major factors that were considered responsible for the existing questionable structures of the SECP and the stock exchanges.