informationallabout

Stock Exch. Small shareholders living on mere hopes

Wednesday, April 22, 2009

Small shareholders, who had taken most of the beating during last year's stock exchange crisis, continue to live on hopes that some day their problems would be alleviated. They have been caught up in a quagmire following uncertainties.

Since huge volume of shares of sub-account holders are blocked and cannot be sold in the falling market, causing disastrous financial losses, they have suggested to the Securities and Exchange Commission of Pakistan (SECP) and Central Depository Company of Pakistan (CDC) to improve the system, whereby sub-account holders would be secured.

According to the suffering shareholders, since the enforcement of CDC, the issuance of share certificates has been discontinued. The investors in joint stock companies have option either to open an investor account with CDC or to keep account with members of stock exchange. Small and medium investors prefer to keep account with members due to recurrent payments to CDC and hassle of issuing and delivering cheques after sales. Both types of accounts are regulated and documented by CDC.

Small shareholders say that it has been a regular practice by some members of stock exchange to obtain loans by pledging sub-account holder shares, as security. Due to recent market crisis and restricting index for 100 days, the members have taken full advantage and obtained loans on sub-account holders fully paid shares, to meet their losses and avoid default. This has resulted in blockade of clients' shares, having no exit for sale of their holdings. Stock exchange members are not giving any time frame to clients for release of their shares pledged illegally with banks without consent of the client.

Commercial banks have given huge loans against 'Binami' shares, knowing that these pledge shares are not owned by loanee. It is strange how banks could advance loans to Karachi Stock Exchange (KSE) members on security of shares whose actual owners are sub-account holders. The KSE members have committed breach of trust and pilferage of shares of their clients, they said.

Investors are in thousands who are caught up between the devil and the deep seas, as there is no exit for them. Many small shareholders are in dire need of money to sustain life. In case of default by member with the banks, the pledge shares would be off loaded in the market by the bank to recover their outstanding loans. This would add further misery to account holders.

The system devised by dispensing with issuance of share certificates to investors is defective, as there is no protection to the investors who maintain sub-accounts. Members are thriving all the time on surety of clients' shares.

CDC has entire records and can give exact volume of shares and names of members who have committed breach of trust. State Bank of Pakistan would do well in directing the banks to seek alternative security, to provide immediate relief to sub-account holders. SECP may also intervene and ask members to return shares pledged by them without clients' consent.

The Advisor to Prime Minister on Finance, Shaukat Tarin, has been active in reviving the stock market by arranging buying out CFS (Badla) shares by financiers at discounted rates, thus helping National Clearing Company, and inducting State Enterprise Fund of Rs 20 billion, besides amendment in company law to permit buying back of shares by owners of the companies.

These steps have benefited members. The Advisor has not taken any steps against members who have pilfered the shares worth millions of rupees from sub-account holders whose shares have been pledged as surety by members with banks. State Bank of Pakistan should also take up this serious matter with banks for advancing loans on 'Binami' shares.

Opting for litigation in the court of law would be a futile exercise as sub-account holders cannot afford to pay legal fees. Besides, it would be time-consuming as well. Once CDC gives the data with names of members and the volume of pledged shares by them, members would be exposed. Sub-account holders have neither given any consent nor any authority for pledging of shares.

The fraudulent actions of members constitute breach of Central Depositories Act - 1997, criminal breach of Pakistan Penal Code punishable by imprisonment, small shareholders said. (BR Report)

Read More!

by Farooq | 0 comments

KSE may put off accounting standard for a year

KARACHI, Feb 8: The stakeholders in the stock market who attended a meeting on Saturday to deliberate on the accounting treatment of decline in fair value of “available for sale investments” in quoted companies held the consensus view that the regulator be asked to suspend the implementation of International Accounting Standard (IAS) 39 for one year, several participants of the meeting confirmed on Sunday.

The meeting called by the Securities and Exchange Commission of Pakistan (SECP) was held between the Institute of Chartered Accountants of Pakistan (ICAP) and an entire spectrum of stakeholders.

Those included about 30 representatives of Pakistan Bankers’ Association; Investment Banks Association; Insurance Companies Association; Leasing Companies Association; the Stock Exchange and two former heads of KSE.

Stock broker-turned industrialist Arif Habib, who was among the participants, affirmed that there was no difference of opinion on that account. And chairman of Mutual Fund Association of Pakistan (Mufap) Najam Ali also endorsed that such was the case.

The SECP and possibly State Bank of Pakistan (SBP) are presumed to hand down their verdict on the issue on Monday.

The matter relates to IAS 39 (Para 58) which stipulates that the significant and prolonged slump in fair values of investments that result in ‘impairment’ ought to be recognised in Profit & Loss account rather than in equity through adjustment in revaluation surplus. But the industry was opposed to that view on the ground that the implications of the IAS would overshadow the robust operational performance of companies.

Arif Habib said that the request had been made because of ‘extraordinary’ circumstances in the year 2008, when the stock market melted away by record 66 per cent from its peak prices. The stakeholders asked that since the problem could be widespread with numerous companies heavily invested in equities, such as D.G. Khan Cement, Packages, Dawood Hercules, Habib Bank, MCB, ABL, NBP, BAFL and others, the decline in fair value of ‘available for sale investments’ in quoted companies should be allowed to be recognised by the companies directly in equity, instead of impairment loss through profit and loss account (P&L) as required by International Accounting Standard (IAS) 39: ‘Financial Instruments: Recognition and Measurement.’

The regulators were expected to announce their decision as early as on Monday, in the light of minutes of the Saturday meeting and observations of the SECP officials. The need for a quick decision stemmed from the fact that as the reporting season was passing by, most companies had put the finalisation of their financial statements and the conduct of Board meetings on the hold, pending the arrival of the verdict.

Meanwhile, Mufap chairman Najam Ali said that Mufap neither intended to nor was authorised to seek a legal recourse for any real or perceived disputes on matters such as these, where so many stakeholders were involved. (Dawn)

Read More!

by Farooq | 0 comments

S.C. The Securities & Investment Institute Enters Pakistan Market

The Securities & Investment Institute (SII) is for the first time ever launching its suite of qualifications in Pakistan. The SII, the membership body for those who work in the securities and investment industry, has launched its Education Programme for the Capital Markets with the Karachi Stock Exchange (KSE) as part of the KSE's Education Programme for their Capital Market Participants.

Taster training sessions were made available recently, run by one of the SII's Accredited Training Providers, the College of Accounting and Management Sciences (CAMS) in Karachi. The launch follows a series of roadshows and presentations to leading broking, investment houses, banks and universities which the SII has been offering over the past month with CAMS and its other training providers, USM and IFIS.

The SII's accredited training providers in Pakistan have begun offering face-to-face training courses to the Capital Markets for the SII's Risk Management, Certificates in Securities, International Investment Management and Derivatives, Foundation programmes in Investment and Islamic Finance qualifications. These qualifications will be aimed at Broker-Dealers, Agents, Fund Managers, Bankers, Investment Bankers and Media employees. Candidates will be able to sit their examinations by computer based testing at test centres in Karachi, Lahore and Islamabad where the SII's ATPs are based and receive instant results. Candidates on training courses who register for SII examinations, which are also available by self-study, will receive an SII workbook (study manual) included with their examination entry fee. Further details on training courses in Pakistan can be obtained from siiglobal.org/Pakistan or international@sii.org.uk or from the SII's London office on: +44 20 7645 0703.

Firms which have expressed interest in putting their staff through SII examinations include KSE, LSE (Lahore Stock Exchange), ISE (Islamabad Stock Exchange), Askari Bank, Bank Al-Islami, brokerage houses and some universities.

Simon Culhane FSI, Chief Executive of the SII said, "We are pleased to be working with the Karachi Stock Exchange and our training providers in Pakistan to offer SII qualifications and membership to capital market participants. The Institute now has some 40,000 members in 49 countries and in recent weeks we have signed important agreements with Regulators in neighbouring countries, including United Arab Emirates and Oman. We are very pleased to welcome Pakistan’s securities professionals into the Institute fold.”

Shehzad Chamdia, Director, KSEsaid, "We have a dearth of skilled capital market professionals in the country as a lot of people get hands on training in our markets and migrate to the developed markets. Due to lack of any structured training and qualifications mechanism Pakistan capital markets were experiencing more volatility than normal. Qualified, skilled and better trained professionals would certainly be in an improved position to handle market turbulence as we are currently deficient in formal training for traders.”

Read More!

by Farooq | 0 comments

European firm to market KSE indices abroad

KARACHI: Structured Solutions (SS) has agreed to cooperate with the Karachi Stock Exchange (KSE) in marketing Pakistani indices outside the country.

Structured Solutions will market KSE indices abroad, especially in Western Europe, to find potential licensees who are willing to launch structured products, ETFs (exchange-traded funds) and other financial products, stated a KSE statement issued here on Tuesday. The cooperation is based on marketing of existing indices calculated by the KSE and Index Development, and marketing of new indices which will be tailor-made for investment banks to launch structured products and other financial instruments.

Structured Solutions AG is a leading consulting company in the structured product business in Germany and Western Europe. It provides structured products for institutional investors and has a joint venture with Boerse Stuttgart AG, one of the largest derivative trading platforms, concerning the index platform S-BOX

Read More!

by Farooq | 0 comments

Tax revenues from KSE drying up

KARACHI: The prolong gloom and doom at the Karachi Stock Exchange (KSE) has wiped out government’s revenue by around 87 percent at the end of first half of 2008-09 compared to the same period of previous fiscal year.

According to the data made available to Daily Times, the Regional Tax Office (RTO) Karachi has witnessed sharp decline in tax collection from equity market on direct tax accounts. The overall tax generation stood Rs 241.866 million in 1HFY09 as compared with Rs 2.010 billion tax revenues collected in 1FY08 by RTO Karachi.

The tax collection on the account of Withholding Tax (WHT) has been Rs 152.284 million during July-December 2008. RTO has received around Rs 1.045 billion taxes under the same account and in the corresponding period last fiscal, showing 85 percent reduction year-on-year basis.

Only in December 2008, the same tax has been recorded Rs 217.146 million as compared with Rs 1.078 million in the same month of previous year, depicting almost 100 decline year-on-year.

Around 450 share traders of KSE are registered with RTO Karachi, who contribute healthy revenues.

The stock market has seen a trading halt during 318 days, as the indices were frozed by the management to prevent the bourses from free falling in 1HFY09. The market has witnessed the outflow of portfolio and local investment since the uplift of floor on the indices, analysts said.

The market remained bearish to reach below 6000 points by the end of first half of current fiscal year, whereas the value of shares has also shrunk to the lowest level.

RTO Karachi has received Rs 965.469 million under Capital Value Tax (CVT) in the first half of 2007-08 but in the current fiscal year, the tax collection under the same head plunged sharply by 90 percent in year-on-year terms to stand at Rs 89.243 million in the first half of 2008-08.

Alone in December 2008, the regional tax office collected Rs 0.568 million under the same account, which also squeezed by 100 percent as compared with same month of last year. RTO received Rs 138.471 million in December 2007.

During July-December 2008, RTO Karachi received Rs 0.162 million direct taxes on the account of financing of badla, which was introduced in this budgetary year.

Read More!

by Farooq | 0 comments

NA body approves bourse demutualisation bill

ISLAMABAD: The National Assembly Standing Committee on Finance and Revenue on Monday approved the Stock Exchanges (Corporatisation, Demutualisation and Integration) Bill, 2008.

The representatives of nationwide bourses and small investors, who also turned up at the meeting, supported the government for early enactment of the bill.

Karachi’s stock exchange was represented by Kamran Y Mirza, Adnan Afridi, Yaseen Lakhani and Zafar Moti, Lahore’s by Arif Saeed and Islamabad’s by Rashid Chughtai. Fauzia Wahab chaired the meeting.

Earlier, an official of Security Exchange Commission of Pakistan (SECP) briefed the committee on the bill. He said demutualisation would separate ownership from trading rights and improve governance by reducing malpractices.

The official said the bill’s enactment would turn stock exchanges into public limited companies by shares and not by guarantees. He said members wouldn’t keep more than 40 percent shares, while the remaining ones would be sold to general public and investors.

The opposition members said the SECP was guarding the interests of small investors and not those of brokers. Journalists were stopped from covering the meeting’s proceedings.

Read More!

by Farooq | 0 comments