KARACHI, Nov 14: The chairman, Securities and Exchange Commission of Pakistan (SECP), Khalid Mirza, said on Thursday that the recently enacted “Takeover Law” required major revamping.
Speaking at a seminar on capital markets, Mirza contended that the law had done very little to ensure that all shareholders got fair treatment and benefited ratably from the built-in price premium whenever a “takeover” or “substantial acquisition” bid was mounted. “It also does not make any provision for a mandatory offer to all shareholders after a certain trigger point of control is crossed or for a mandatory sale to the acquirer after an overwhelming ownership percentage has been acquired,” the SECP chief said, adding that the biggest problem of the law was that it prevented the subject of takeover from being regulated under the listing rules which, he said, was how takeovers should be regulated in the first place.
The SECP chief made a scathing criticism of “bureaucratic ineptitude and total apathy to national interests,” which, he said had failed to notify the rules under the Insurance Ordinance, 2000, even after they had been drafted by the SECP as early as in December, 2000.
“While in some respects, the Insurance Ordinance, 2000 is a marked improvement over the Act of 1938, the essential regulatory scheme embedded in the law is fragmented, dissipated and ineffectual,” the SECP chief said adding that instead of suitably empowering the regulatory authority to effectively enforce compliance with the law, it actually served to cripple the regulatory authority, rendering it incapable of carrying out its regulatory duties.
“It is my considered view that unless the Insurance Ordinance, 2000 undergoes a major overhaul and proper rules are notified thereunder, it would be impossible for the SECP to regulate the insurance sector properly and to take appropriate steps to ensure the sector’s development,” Mirza declared. He said that until that happens, the insurance sector would continue to be infested with carpet- baggers of one form or another and the sector would neither be capable of serving the insurance needs of the public nor would it have ample resources to invest in the market.
The SECP chairman said that in order to provide the capital market institutional underpinning, it was necessary to develop and strengthen mutual funds, pension funds and the insurance industry. He reiterated that at a structural level, the stock exchanges would have to demutualize in line with international trends.
As regards availability of credit for transactions in shares, he said that it would be ideal if margin financing, together with the futures market, were to essentially replace badla which carried systemic risks. “With the help of a Committee set up under the Capital Markets Consultative Group, we have developed a phased programme for progressive replacement of badla by margin financing and futures contracts which will be announced shortly”, the chief regulator said.
He stated that SECP would encourage the emergence of Electronic Communication Networks (ECNs) and Automated Trading Systems (ATSs) and that it would be facilitated when the Electronic Transactions Ordinance, 2002, got fully enforced and digital signatures got legal cover. A regulatory framework for online trading was needed to be developed, he said.
Mirza said that from a fundamental stand point, the three “drivers” of capital market development, which constituted the drip-feed into the market have been venture capital, securitization and corporate debt securities, in particular, convertible debt. “In Pakistan, all three areas have been mired with problems, essentially relating to tax and Islamization,” he said.
The SECP chief also talked eloquent about the sea change that had been brought about by the regulatory reforms introduced since his arrival on the scene as the chairman, SECP, about two and a half years ago.
Among the earlier speakers, Nasir Bukhari, chairman KASB & Co. defended the stock brokers fraternity and said that prior to the seventies, the integrity and fairness of brokers was never questioned and his word was his bond.
He said that the unsavoury perception about the stock brokers was changing and he praised the SECP’s vision about capital markets. Nasir stated that in the nineties, an “ocean” change came over the market. KASB took the lead in converting to corporate brokerage house and there were now 92 corporate brokerage firms at KSE; 43 at LSE and 29 at ISE, all of which together contributed 80 per cent of trading volume.
He said that against the market capitalization of Rs525 billion, the annual turnover at KSE was Rs2500 billion, which made KSE the leading market in terms of turnover among the regional markets. He recommended that stock brokerage houses should convert themselves into NBFIs.
Muddassar Malik, an investment banker and director equities at BMA Capital Management estimated that there were no more than 500,000 retail investors in Pakistan, which was less than 2 per cent of the number of bank accounts with Pakistani banks.
Most household investment, he said, went into call deposit parked with banks, which yielded as little as 5 per cent return.
Iqbal Latif, an international investor, said he had great faith in Pakistan and criticised the investing public, particularly the stock brokers for being long on slogan and short on action. He said that they believed in remaining short, while markets all across the world were made of long term investment.
The “Seminar on Capital Markets — the road ahead” was organized by ‘Daily Times’ and Saudi Pak Industrial and Agricultural Investment Co (Pvt) Limited.