Liquidity injection to precede removal of index freeze from KSE

[Naveed Yaseen]

KARACHI (September 23 2008): A comprehensive package consisting of both fiscal and monetary measures is being finalised to provide necessary liquidity to bourses prior to the removal of floor on the Karachi Stock Exchange. Saudi Pak Commercial Bank President Shaukat Tarin (tipped to take over as Advisor to the Prime Minister on Finance shortly) along with Pakistan Business Council CEO Syed Salim Raza (tipped to be the next SECP chairman held a meeting with State Bank Governor Dr Shamshad Akhtar on Monday.

Later in the afternoon, they were joined by KSE Chairman Kamran Mirza, Managing Director Adnan Afridi and the big three of the KSE - Arif Habib, Aquil Karim Dhedhi and Jahangir Siddiqui - to discuss various proposals.

The brokers' representatives sought relaxation in Prudential Regulations to enable banks and other financial institutions to enhance their investment in shares. They also sought an even playing field by allowing the banks capital gain exemption, which is available to other investors.

Various measures, both immediate, short and medium terms were discussed. These included providing a credit line or a Repo facility to institutions investing in market stabilisation fund. At present, banks are allowed to invest 20 percent of their capital in the ready market and 10 percent in futures. Merging of the two is also being considered. Governor Akhtar reportedly stated that SBP has already generated Rs 200 billion in additional liquidity since July this year and would consider how much additional liquidity was needed.

Brokers suggested that sweetness may be considered for sponsors buyback option such as an extension in the period for capital gains beyond the existing two years period. Second attraction could be that the dividend on buyback shares would be tax deductible.

And, third, if 75 percent unit holders of closed end mutual funds agree, the Fund be allowed to borrow and invest up to 50 percent of the Fund. It was felt that all stakeholders ie Ministry of Finance, SBP, SECP and FBR read from the same page to work out modalities for stabilisation of the market.

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