BATS are good, but need to lure more listings

Plans to introduce trading in the Debt Market Securities on the Karachi Stock Exchange through its Bond Automated Trading System are quite commendable. The countrys bond market, after all, has remained historically dry, despite a high level of economic activity was seen between 1999 and 2007.
Although, both the numbers - new bond listings and the size of the issue grew from Rs 2.7 billion in 2003 to Rs 26.5 billion in 2008, relative to total economic output it remained largely flat. And even these have been dominated mostly by financials, such as banks and leasing firms, whereas manufacturers seemed to have avoided the public bond market. According to Financial Structure Database of CIEC, financing raised from Pakistans bond market grew to just 29.7 percent of the GDP in 2005, from 29 percent in 1990.
This trend in akin to that in the equity market, where the size and number of IPOs have been sliding over the past few years. From a record Rs 6 billion worth in CY04, the size of new equity floatation has shrunk to about Rs 0.225 billion in CY09 to date. According to last available comparative statistics compiled by the Asian Development Bank, the performance of Pakistans capital market has been rather dismal relative to its peer economies.
So, after having bitten by 59 percent decline in net profits in 2009, the management of KSE should not just invest in setting up terminals such as BATS. A lot more has to be done to bring together savers and investors by the bourse management in tandem with the SECP and other government bodies.
These may include, reforming listing rules and regulations to encourage public and OTC listings, increasing investors awareness and ensuring more transparent disclosure requirements to reduce public mistrust amongst other measures. In this regard, the much delayed demutualization of exchanges becomes imperative that will add transparency by better corporate governance and collaboration with reputed foreign partners to attract foreign investors. This, together adequate liquidity, post demutualization, to the local players (brokers), can help grow both the breadth and depth of capital markets.

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FINANCE FROM EQUITY & BOND MARKET

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        (as a percentage of GDP 2005/06

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Indonesia                          50.7

Pakistan                           65.5

China                              94.5

Thailand                          105.6

India                             109.2

Republic of Korea                 190.2

Singapore                         221.3

Malaysia                          231.5

Japan                             284.7

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