It has been a rough ride for local stock market investors over the past six months. Having recently touched a 17-month low, the benchmark KSE-100 index’s fall from grace has been particularly troublesome for the brokerage community.
Political factors notwithstanding, the fall have been exacerbated by the treatment of brokerage houses at the hands of the Securities and Exchange Commission of Pakistan (SECP). After a change of guard at the regulator following record tampering allegations by its head, the new management has set about the task of placating brokers.
The absence of liquidity has proven to be a major hurdle when it comes to improving volumes in the market. Granted that the badla-financing system, which has been illegal since 2006, has managed to stay in place as the primary source of fuelling liquidity in the market.
But according to sources within the brokerage community the only reason this has happened is due to no viable alternatives available for brokers. The options provided by the regulator which include margin trading and margin financing have not been embraced due to operational difficulties and limited coverage of equities.
The lack of innovation and in-house expertise on the behalf of brokerage houses has also not helped. Combine this with the absence of a proper margin financing system by the regulator and you have the ingredients for stagnant growth. Derivative products which entail higher sophistication in terms of deployment as well as infrastructure are far down the road at this stage.
The grievances don’t stop there. Local market participants label the know-your-customer (KYC) requirements as more onerous than the ones for other avenues such as the property market. The implementation time has been extended by the SECP till the end of March, 2018 amidst hue and cry by the brokerage houses.
On a similar note, this column has received complaints by brokerage houses of being asked to provide almost ten-year-old documentation which is proving to be cumbersome since the regulator did not have such stringent requirements back then.
At the same time, the filing of criminal cases against brokers without following them through because of limited evidence hasn’t made the already prickly relationship any better. In light of these issues, the brokerage community has opted to sideline market participation and the recent efforts by the SECP seem to signal a loosening of its hard stance towards brokers.
Comments
Comments are closed.