SECP asks stock eschanges to remove floor from Monday

[Naveed Yaseen]

MSCI Barra announces Pakistan’s removal from MSCI Emerging Markets Index from Jan 1

Friday, December 12, 2008
By Salman Siddiqui

KARACHI: After three months of unfruitful consultations with three bourses of the country, apex regulator SECP has unilaterally decided to remove floor from next Monday, Dec 15.

Directives were issued at the conclusion of an internal (teleconference) meeting of the Securities & Exchange Commission of Pakistan (SECP) on Thursday. The commission’s chairman was in Lahore.

Directives in this regard have been received by officials of the equity markets, The News learnt. While a meeting of the Board of Directors of the Karachi Stock Exchange (KSE) had tentatively scheduled for Saturday, Dec 13, to discuss the emerging situation ahead of the directives’ issuance, said a KSE director.

Bourses shall resume Monday’s session on the same “parameters” on which they were functioning on Aug 27 ñ the date on which floor was fixed ñ said the statement issued by the SECP to the media. The statement mentioned no other change to securities’ regulations.

The directives on floor removal were issued after a few hours of the announcement made by MSCI Barra - the leading provider of investment decision support tools to investment institutions worldwide - stating that it would remove the MSCI Pakistan Index from the MSCI Emerging Markets Index as of close of December 31, 2008.

“A link between the SECP’s and MSCI’s separate decisions might be a coincidence. The SCEP chairman was not present in Islamabad and he had to summon an internal teleconference meeting at a very short notice,” said an analyst.

An official of the SECP, however, dispelled this impression and said the commission was all set to issue directives on floor by Friday, Dec 12. “Reports in this regard were there in media,” he clarified.

Many brokers in their first reaction praised the decision on floor removal. They said the removal of floor would, at least, allow the market to function normally, as market had halted since the floor came into being.

The SECP statement said: “It is hereby further directed that for a period of 90 days commencing December 11, 2008, the stock exchanges and their respective Boards of Directors shall not take any action which will interfere with the normal functioning of the stock exchanges and trading of securities, but not restricted to the closure of the market or placing any restriction on the trade prices of securities, without consultation with and prior written approval from the commission.

“Over the past three months, stock exchanges had imposed floor price levels. Despite best efforts, the market support fund, and other instruments like ‘put option’ could not be brought into operations so as to provide a soft landing. The matter has been considered thoroughly by the commission and it finds no reason that the floor level as imposed be continued. The commission has decided to restore the normal functioning of the stock exchanges.”

MSCI:

When asked to comment as to who is responsible for the MSCI Barra decision of removing Pakistan from its emerging index, a KSE director said it was the government that is to be blamed for it as the government kept market officials totally in dark and repeatedly said it would bail out the cash-starved market.

He recalled the visits of then minister of finance Syed Naveed Qamar and Adviser to the Prime Minister on Finance Shaukat Tarin to the KSE in the near past and maintained that both the financial managers had assured of the government’s full support and had announced two separate funds (each of Rs20 billion) to bail out the market. “It is for this reason that the government should be held fully responsible for the MSCI Barra decision,” he said. Asked whether the KSE would comply with the SECP directives on floor removal, he replied that the KSE Board would look into the matter at its scheduled meeting on coming Saturday.

Saad bin Ahmed, CEO, Capital One Equity, however, said brokers should be held responsible for the MSCI decision and then the SECP partially too. He added that representatives of markets, the SECP and the government, all three parties, should in fact be held responsible for the MSCI decision.

According to another analyst, 90-95 per cent of the foreign portfolio investors consult MSCI before making investment or withdrawing investments from Pakistan.

However, Pakistan has not yet missed the boat, as MSCI Bara in its same statement has said that it would, in due course, reassess the situation and consult with international institutional investors on the inclusion of the MSCI Pakistan Index in the appropriate MSCI international equity indices, including the MSCI Frontier Markets Index, if and when the investability conditions return to more normal levels.

MSCI Barra will, however, maintain the MSCI Pakistan Index as a stand-alone index after its removal from the MSCI Emerging Markets Index.

http://www.thenews.com.pk/daily_detail.asp?id=151403