CCP says floor on equity index illegal

[Naveed Yaseen]

KARACHI: The Competition Commission of Pakistan believes a floor placed on the Karachi stock index to stop prices from falling violates laws on restrictive trading and has issued a show-cause notice, a senior CCP official said on Friday. "When you set a floor, you fix trading, and this is a violation of the law, prima facie," the CCP official, who requested anonymity because of sensitivity of the issue, told Reuters. The commission has issued show-cause notices to the bourses in Lahore and Islamabad, as well as the main Karachi Stock Exchange (KSE), the official said. Stock exchange authorities imposed a floor on the KSE benchmark 100-share index in late August after the index fell nearly 35 percent since the start of the year. The bourses have been given two weeks to respond to the show-cause notices. The official did not give details on what measures the commission could take. Trading has dried up since authorities imposed a floor at 9,144 points. Investors were unable to exit the market as they could not trade at prices that could attract sellers. The move also resulted in pay cuts and job losses as brokerages struggled with poor volume. "From an investment point of view, it seems like a discriminatory practice," the CCP official said. "Its discriminatory against those having a bearish view on the market or those who have short positions." Exchange authorities are looking at ways to remove the floor. In October, the stock market regulator had given the go-ahead for a 20 billion rupee ($254 million) fund to be established by four-state run firms. But the International Monetary Fund, which bailed Pakistan out of a balance of payment crisis with a $7.6 billion loan package last month, is blocking the set up of the fund -- the preferred solution of investors and the government -- a KSE official said. Without a fund in place to absorb an expected flurry of selling by distressed investors, the results of removing the floor could be traumatic, analysts said. KSE authorities met the stock market regulator on Friday to discuss invoking a force majeure but no decision has yet been taken, exchange sources said. Another meeting is set for Saturday. The KSE benchmark 100-share index was trading flat at 9,187.1 points at noon, just 43 points above the floor, and 100 shares were traded. reuters

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