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KARACHI: If the stock market features low on government’s list of priorities,
it is because traders and brokers would be at a loss to dismiss criticism that
the market scarcely works for the greatest good of the greatest number.
The total number of investor account in the Central Depository Company (CDC)
currently stands at 0.05 million while those in the sub-accounts aggregate 0.25
million. In a population of 170 million, it would be one in a thousand that
dabble in stocks. Fruitless to compare that with one in four persons that visit
the Dalal Street in Mumbai or every second American who invests his money and
future in stocks.
Markets all through the world were in melting pot in the year 2008, but there
are indications of recovery. The KSE, which plunged by a historic 60 per cent
during the year, the 100-share index tumbling from 15,760 to 4,800, pushed
hundreds of middle class households to the brink of poverty. The injured were
spared the agony of waiting for Probe reports as most people agreed that the
greatest sufferers were those who bought stocks on borrowed money.
That brought on to surface the simmering revolt against the ‘badla,’ named as
CFS and further glamourised into CFS Mk-II by the previous SECP chairman. Haji
Ghani Haji Usman, who was one of the two major brokers who spearheaded the
successful movement by more than 100 brokers to the end to ‘badla’ is aghast at
the regulators’ dilly dallying on replacing the outgoing leverage product with
another one with better features.
He says that a consultative committee was set up to review and release a new
derivative product in the market, but after four meetings and a passage of two
weeks, the public is at a loss to know, how far the progress has been made.
‘The Securities and Exchange Commission of Pakistan must ask the committee to
come up with the alternative leverage product within 10 days,’ he says.
The consultative committee of 10 members has received much flak for what most
believe to be its slow progress. But Aftab Diwan, who heads the committee, says
that its consultations with the SECP on a new leverage product was only a part
of the job. ‘The consultative group has been assigned the task of looking at all
aspects of the capital market, including risk management and to discuss them
with the SECP,’ says Mr Diwan. ‘Discovering a new leverage product is primarily
the job of the stock exchanges,’ he says in defence.
SECP chairman Salman A Shaikh could not be reached, but spokesman for the apex
regulator shifted the responsibility on the committee.
‘We are waiting for recommendations of the committee,’ said Imran Ghaznavi and
added that the SECP would look into the features of the new product when one is
placed on the table.
No one at the stock exchange, among the committee members or at the SECP would
commit on a firm date for the launch of a new product.
Mr Diwan explained that all stakeholders were being consulted, including the
Mutual Fund Association of Pakistan; the Association of Insurance Companies;
Modarabas; financial institutions and the bourses. He said that reaching
consensus would obviously take a little while.
The market pundits call the matter of new leverage product a ‘grey area.’ There
was, however, a general agreement on finding a derivative product that stands up
to ‘International best practices.’ But why was a quick introduction of the new
leverage product of such paramount importance?
A small investor who had lost all of cash, house and a shop in the stock debacle
of 2008, expressed his grievance.
‘During the bloodbath, CFS or ‘badla’ was believed to have caused the greatest
amount of hurt,’ he said. That leverage product was scrapped, but small
investors who would still like to trade with the hope of recovering of some of
their losses, had been deprived of a new derivative product.
‘From the depth of 4,800, the KSE-100 index has clawed up 15 per cent or by
around 2,400 points,’ he says. But because of the absence of leverage, only the
deep pocket investors, who can take delivery on cash, are able to reap the
riches. There is lot of heart burning among leverage players, who stand aside,
cast out as the ugly ducklings. But some believe that as volume of trade keeps
evaporating to 100 million shares a day from an average of 250 million in the
first quarter of last year, the impact might be more widely felt.
Some prophets of doom even suggest cornering of scrips by ‘broker cartels,’
followed by lower locks and the fall of the market into another crisis. |
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