KARACHI, July 28: The Advisor to the Prime Minister on Finance and Economic Affairs Dr Salman Shah says that at a meeting here on Friday he will firm up the measures proposed to revive the stock market. “We are going to firm up the measures (proposed by the Shaukat Tarin Committee) and see how to give them practical shape,” Dr. Shah said when reached by Dawn over telephone. He is going to chair a high-level meeting on Friday at the State Bank head offices to discuss in detail the measures proposed by the committee for early revival of the stock market. State Minister Omar Ayub Khan, the SBP Governor Dr Ishrat Husain and Chairman of Securities and Exchange Commission of Pakistan Dr. Tariq Hassan will also attend the meeting.
Asked if he would urge upon banks to inject more liquidity into the stock market to pull it out of the crisis, he said: “banks should themselves see for opportunities (of investment) and I know they treat the stock market as an important segment (of their investment portfolio)”. Banks have been under the spotlight in respect of the recent stock market crisis. Stockbrokers say banks failed to provide enough margin financing on time required for a swift switchover of the market from conventional badla financing to margin financing.
But senior bankers say stockbrokers have been reluctant from the day one to do away with badla financing. They say most brokers want that either badla be allowed to continue in its present form and the plan to replace it with margin financing is shelved—-or both be allowed to co-exist. Under a reforms plan of the SECP, market-based margin financing was to completely phase-out badla financing by August 26 this year. But the controversy between bankers and stockbrokers over the pace of margin financing being provided by banks forced the SECP to announce suspension of the phase-out plan in the middle of this month.
Dr. Salman Shah refused to comment on whether badla financing would be allowed to co-exist with margin financing and added that the government wants to look into every aspect of the stock market problem before implementing measures to overcome it. “We hope to take some decisions on Friday,” he said but added quickly that it might require some time to implement those decisions. “We have to look into the regulatory and legal issues,” Dr. Shah said. When asked about a timeframe for all this he said he would like to see that the decisions taken to end the stock market problems are implemented “as soon as possible.”
Dr. Shah said the stakeholders should realise that systems need to be developed to ensure that all the issues confronting the stock market are resolved on sustainable basis. He said one should not expect “a switch-on” sort of solution for the problems at hand and admitted that lack of liquidity in the stock market was one of the key problems.
The stock market has been in crisis for more than four months. The Karachi Stock Exchange 100-share index that reached an all time high of 10078 on March 16 has fallen by more than 28 per cent since then primarily because of the lack of liquidity. This huge loss in the index has also reduced the market worth of the shares traded at KSE by Rs661 billion.
A committee of stakeholders formed in April and expanded in mid-July has been working to end the controversy over replacement of traditional badla financing with margin financing and revive the stock market. The committee is also working on how to prepare the market for sustainable development on long term basis.
The committee headed by the Chairman of Pakistan Banks Association Mr. Shaukat Tarin has submitted its initial report to Dr. Shah and is expected to add more to it in Friday’s meeting.
At the meeting, the members of the committee including leading fund managers, bankers and heads of all the three stock exchanges would discuss in more detail the issues of badla and margin financing plus whatever is needed to pull the stock market out the crisis. The key issue to be taken up in Friday’s meeting is whether conventional carryover trade (COT) financing or badla in brokers jargon can co-exist with margin financing.
Sources close to the committee say the committee is of the view that badla can co-exist with margin financing if its features are modified and improved. They say that abolishing badla financing altogether will result in shifting of liquidity to the futures market at the cost of ready market thus concentrating trading in a limited number of scrips.