ISLAMABAD, March 25: Securities and Exchange Commission of Pakistan (SECP) chairman Tariq Hassan has said the commission will investigate the current downtrend on the stock market causing heavy losses to small investors. Speaking at a press conference here on Friday, he said the SECP would investigate and take appropriate measures from next week against elements found guilty of indulging in misrepresentation or fraud in trading in the Karachi Stock Exchange (KSE). Mr Hassan said the SECP would set up a special cell to handle complaints by investors.
“Sophisticated individuals, mostly institutional investors, sold their shares in time. Inexperienced individual investors probably got carried away by the euphoria and are now caught in the bear trap,” he said while commenting on the market situation.
When asked whether there was any connection between his March 4 warning that market sentiments were bearish but the trend was bullish and that the people should invest wisely in an over-hyped market and the subsequent market crash, Mr Hassan said had the SECP not issued the warning the size of the damage might have been larger.
While analysing the KSE situation, the SECP chief claimed that there had been no default in the settlement; even if there was a default, which was possible in any business, it was not likely to pose a systemic risk.
“The economic situation remains the same, the corporate and market fundamentals have not changed, the margins are being maintained, the market-to-market losses are being made up continuously, there has been no default in the settlement, the risk-management measures are intact and have been further strengthened recently, the KSE has been advised to take further risk-management measures, while regulatory controls are intact,” he said.
Mr Hassan said the SECP always consulted the stock exchanges and market participants before issuing any directives.
The SECP would investigate manipulation or over-trade by brokers and take action against those responsible in order to prevent such abuse in future, he said and added that the commission had already asked the stock exchanges to strengthen their monitoring and surveillance system.
The SECP had asked the KSE to take additional risk-management measures to protect the ready and futures markets, he said. The KSE had also been asked to reconstitute the index based on the free float in order to remove the present distortion.
He said the SECP was not in favour of extension of the contract period by the KSE because it wanted to maintain the principle of sanctity of contract.
“The SECP is pleased with the reversal of the decision by the KSE in this regard and believes that the broker-to-broker (B2B) facility extended therewith will provide weak holders a way out of the situation. This function is provided within the system and will ensure the integrity of the system,” Mr Hassan added.
The commission had been working with the State Bank of Pakistan to ensure that banks were geared up for margin financing. “We, therefore, foresee no problem in the settlement. Trading in normal share continues because they represent fair value. Bargain hunters sitting on the sidelines are likely to lose out,” the SECP chief maintained.
In reply to a question, he said, the SECP regulated the market and had no control over the irrational behaviour of market participants. The commission was responsible for maintaining transparency and integrity of the trade transactions but not concerned with the outcome of the trade, he observed.
Mr Hassan said the SECP, along with the SBP, wanted stability of the financial system. “But I don’t think it is desirable at this stage to be defensive or offensive and to start the blame game,” he said while commenting on the SECP’s role in the wake of the market crash.
When it was pointed out that there was a common impression that some forces were creating hurdles in the implementation of SECP’s reforms and that brokers would be the real winners in the end, he said brokers could never be the winners and the reforms were being implemented.
POLICE GUARD: Paramilitary troops and police guarded the Karachi Stock Exchange on Friday after angry shareholders damaged the bourse’s property on Thursday in the wake of market slump, adds AFP.
Rangers and police were searching people and checking their identity cards as they entered the KSE, witnesses and police said, while four mobile police vans were stationed outside the building.
KSE Managing Director Moin Fudda said that initial investigations showed the market was being manipulated by ‘someone big’ so they could buy shares cheaply from desperate smallholders. He did not elaborate.
“Reforms have largely checked the chances of manipulations and it is not being done at the levels of say 10 years ago, but there is still room for further improvement,” said Mohammad Sohail, director of Jahangir Siddiqui Capital Markets Limited.