There's no need for panic: PSX chief

Pakistan Stock Exchange (PSX) Chairman Munir Kamal said Tuesday that Pakistan's market is well established and growing and there is no need for panic. Addressing a press conference at Securities and Exchange Commission of Pakistan (SECP) through video link from Karachi, Chairman PSX Munir Kamal said as opposed to the previous crashes in stock market, the market conditions are stable and reiterated that no single group is strong enough to dictate the markets directions.
Munir said that keeping checks and balances and asking queries is the right and responsibility of regulators, the SECP and PSX, and therefore the brokers should be appreciative of regulators proactive approach to safeguard market and investors. Muneer Kamal said that local and foreign investors believe Pakistan's economic, security and political situation is now better. However, falling of stock exchange index is a normal thing in trading activity. "Our aim is to provide support and assistance to particularly small investors," he added.
He further said that any bankruptcy of stock brokers would not hurt Pakistan Stock Exchange. The regulators of capital market have expressed dismay that the illegal mode of financing was still prevailing in the stock exchange, however, MD PSX Nadeem Naqvi said that 'badla' financing was much lower in 2017 as compared to the 2008.
"We do not have any proof but I guess that 'badla' financing is around Rs 10 billion in the stock market now, whereas the holdings under margin trading system (MTS) financing is of worth Rs 14 billion," he added. Naqvi also said that activities of certain brokers were neither totally legal nor clearly illegal. He said that here is a grey area in the middle as some brokers take advantage of higher property rates and mortgage their house to finance the holdings of their investors, in an attempt to make higher gains.
"But the recent growth of the market was not based on higher leverage," MD PSX added. Munir Kamal highly appreciated that the legislators like Chairman Senate Committee for Finance and Revenue, Senator Saleem Mandviwalla, have raised issues of brokerage houses. It is a good thing that the legislators have raised the issue of capital market. The credit goes to the legislators that they are taking interest in the issues of capital market.
While explaining the market fundamentals, the Managing Director PSX Nadeem Naqvi said that the market's total capitalisation stands at $90 billion. The free float of shares is around 24 per cent, while one-third (1/3) of the shares holding is with foreign investors and one-third (1/3) of market share is with local financial institutions, mutual funds etc Therefore, he said, only 40 % of the market was with the retailers and because of markets diversity, they believe that individual brokers cannot manipulate it.
To a query, Nadeem Naqvi said that in-house badla is illegal at the stock exchange. In certain cases, the SECP has informed that the level of activity is more than the net capital balance which is a grey and high-risk area at the stock exchange.
As on December 2016, the outstanding amount of margin financing stood at Rs 14 billion as compared to 2008 when in-house badla reached volume of Rs 50 billion. "The issue is that the in-house badla is not a crisis situation. There is no danger to the stock exchange due to the in-house badla," he said. To a question on action against big brokers, Nadeem Naqvi said that the market has improved during the last 4-5 years and now the stock market is divergent. If a broker is big, this does not mean that he is not working properly. There are big brokers having foreign investment from international deposits and have excellent repute. Therefore, if a broker is big, there is nothing wrong about it.
Nadeem Naqvi stated that currently audit of 400 brokers is under way for which a joint inspection regime has been implemented. In this regard, a joint inspection regime of 400 brokers would ensure their audit. He said, "We cannot blame the entire brokerage community for the wrongdoings of a few brokers in stock market." To a query, he said that the PSX is releasing funds to investors on account of companies got defaulted.
Chairman PSX Munir Kamal and MD PSX Nadeem Naqvi also shared data of 12 defaulter/expelled brokers with media: The brokers are AAG Securities (Private) Limited, MKA Securities (Private) Limited, United Capital Securities (Private) Limited, Mars Securities (Private) Limited, Ismail Abdul Shakoor Securities (Private) Limited, Prudential Securities (Private) Limited, ACE Securities (Private) Limited, ZHV Securities (Private) Limited, and MNS Securities (Private) Limited. In 12 aforesaid cases of defaulter/expelled brokers, total complaints received were 3,453, 3,196 complaints were approved, 100 per cent settlement was made in 2453 cases, percentage of settlement remained 76.8 per cent and total amount paid against claims was Rs 688.8 million.
In case of AAG Securities (Private) Limited, 226complaints were received, 205 complaints were approved, 100 percent settlement made in 205 cases, and total amount paid against claims was Rs 89.3 million.
In case of MKA Securities (Private) Limited, 197 complaints were received, 184 complaints were approved, 100 percent settlement was made in 184 cases, and total amount paid against claims was Rs 97.25 million. In case of United Capital Securities (Private) Limited, 544 complaints were received, 537 complaints were approved, 100 percent settlement was made in 537 cases, and total amount paid against claims was Rs 76.92 million.
In case of Mars Securities (Private) Limited, 768 complaints were received, 756 complaints were approved, 100 percent settlement was made in 756 cases, percentage of settlement remained 100 per cent and total amount paid against claims was Rs 131.81 million.
In case of Ismail Abdul Shakoor Securities (Private) Limited, 99 complaints were received, 87 complaints were approved, 100 percent settlement was made in 52 cases, percentage of settlement remained 59.8 percent and total amount paid against claims was Rs 75.00 million.
In case of Prudential Securities (Private) Limited, 402 complaints were received, 352 complaints were approved, 100 percent settlement was made in 284 cases, percentage of settlement remained 80.7 percent and total amount paid against claims was Rs 75.00 million.
In case of ACE Securities (Private) Limited, 567 complaints were received, 531 complaints were approved, 100 percent settlement was made in 76 cases, percentage of settlement remained 14.3 percent and total amount paid against claims was Rs 25.00 million. In case of ZHV Securities (Private) Limited, 477 complaints were received, 444 complaints were approved, 100 percent settlement was made in 301 cases, percentage of settlement remained 67.8 percent and total amount paid against claims was Rs 80.21 million.
In case of MNS Securities (Private) Limited, 173 complaints were received, 100 complaints were approved, 100 percent settlement was made in 58 cases, percentage of settlement remained 58 percent and total amount paid against claims was Rs 38.58 million.