KARACHI, March 22: As optimism melted away on Tuesday, investors at the Karachi stock exchange braced themselves to face what might turn out to be one of the worst crises in the bourses’ history. The timing of the first wave hitting the shore is as close as Friday. That is when the March Future contracts would have to be settled. Sources close to the market are looking at colossal losses to investors in the future market, since they would not be able to square up their positions, mainly in the share of Oil & Gas Company Limited (OGDC). The losses inevitably would have to be borne by brokerage houses. The air at the market has been thick with rumours, popular among them being a hugely over-stretched future position of a recently launched high profile upcountry stock brokerage firm, namely the First National Equities Limited (FNE). But Ali. S. Malik, Chairman of FNE talking to Dawn from Lahore, insisted that it was sheer nonsense. “We have absolutely no concern with the current crisis since we hold no OGDC positions in future contracts,” said Mr Malik, adding that his statement was open to verification from the KSE’s clearing house records.

It is not to say who by design or default perpetrated the current crisis: The Government, which never tires of boasting about economic miracles, the blessing of which are yet to trickle to the poor; the Securities and Exchange Commission of Pakistan, which when woke up from deep slumber, came up with drastic new market regulations to be implemented almost immediately, and worst of all the Regulator decided to add an unmanageable number of stocks in the Future counter.

Pray, what was the need to do so, when the badla was already being smoothly replaced by margin financing? It is the futures contracts that are at the heart of the current crisis and the onus for it lies fairly and squarely at the door of the SECP. Then, what was the chief regulator and hotchpotch board of directors of the KSE doing when the gap between the ready and March future contract prices had widened by as much as 30 to 100 per cent.

It would be naïve to blame the KSE board drawn from hither and thither, for not many of the members who sit on it, could be expected to completely understand the market, much less the recently forwarded SECP rules. Was KSE management, which for the time being has stopped waving and placed aside the flags of ‘best performing stock market in the world’, a silent spectator? And surely under the thickest cloud of suspicion are the major stock brokers, who would not just survive the present crisis but emerge with millions more in their kitty.

But if it was somebody’s intention to plunder the largest number of middle class Pakistanis of all their savings (again by design or default), the strategy could not have been better planned and more perfectly executed.

Privatisation for the people multiplied the number of small investors in equity from half a million to 14 million (number of applicants in the Kapco’s IPO). No one disputes the fact that it was and still is a grand idea of the Privatization Commission to pass on the greatest good to the greatest number. But where returns on NSS and bank deposits have withered away, small investors naturally turned to the booming stock market. Share values kept climbing. OGDC with insensibly high weightage of 38 per cent misrepresented the KSE index and the real growth of the market. Everyone cheered when the index zoomed past the 10,000 mark. Did any one in authority stood up to ask for the correction of the index defect? But just as the saying goes: “Success has many fathers, failure has none”, all those who were elbowing each other in quest to claim credit for the market boom have disappeared in time of distress.

The long list of Government’s regulatory reforms; SECP’s corporate reforms and KSE’s market reforms have all fallen on the sidelines, as just one stock, OGDC tied to its deck is pulling down the titanic to the bottom of the sea. Small investors were lured into buying highly priced oil & gas shares on the assurances of new discoveries and into the worst of cement stocks on the imminent construction of ‘dams’. Never mind the warnings to investors coming from various quarters of not to over-stretch their positions and the need and greed theory, the small investor who had just entered the equity market was unlikely to heed or understand them, when shares were rising by leaps and bounds. If OGDC was worthless than Rs100, couldn’t some one have put his foot down before it crossed the unfathomable price of Rs296?

Now with most of the first and second tier stocks in all sectors, including 24 of the 30 top stocks locked under their lower lock, small investors have no way to exit. Losses are running into millions for those who do not have that kind of money. The bubble has burst and the unfortunate small investor, who ventured late to dabble in stocks with say Rs200,000, would have already lost half his savings in just about a week. When the dust finally settles, it would be wonders of all wonders if even 50 per cent of the original half a million scared small shareholders would ever dare to hit the road that leads to the left of Merewether Tower. Intense fear now grips the small investor who is losing 5 per cent of his investment on a daily basis, irrespective of whether he put his money in the best of oil& gas, banking, cement, fertilizer and other stocks. With the lower locks coming on within minutes of the opening of the market, he has no way to seek an exit.

It would make little sense to blame the one who perpetrated the current crisis. Fingers point in all directions. If the SECP sadly lacks the likes of trouble-shooting Khalid Mirza, the former chairman, the Government must itself step in. Let the heads be put together: those of the representative of the Government; the SECP; the board of KSE; the management and the big and mighty stock players, who should think of a way on the holiday on Wednesday, to pull the Exchange out of the quagmire.

Meanwhile the small investors’ confidence has been completely shattered. As for the prospects of entry of foreign funds in Pakistan’s equity market and the imminent inclusion of KSE into the MSCI index, the less said the better. But could this sombre piece be closed on a less brooding note: It is said that seeing the eroding purchasing power of investors in stocks, the ‘biryani’ vendor sitting outside the Exchange has changed to dishing out ‘daal chawal’!