Securities and Exchange Commission of Pakistan (SECP) Chairman Farrukh H Sabzwari has said that the SECP is working closely with Pakistan Stock Exchange (PSX) for introducing small and medium enterprises exchange. Sabzwari, a strong advocate of a progressive SME sector said he is endeavouring to prescribe a less stringent regulatory and statutory regime for SMEs. The SMEs should have emerging venues, smooth access to finance and accountability to the stakeholders. Around 85% of the non-listed entities fall into the category of SMEs which are largely dependent on banking sector.
Talking to Business Recorder, he also mentioned, "There has to be a market place where small businesses can offer their business plans. If there is a business, which is not profitable and is in its nascent stages, perhaps only institutional investors should be allowed to participate. If a business is medium-sized, profitable and is not too risky then institutional investors as well as high net worth individuals may participate. The businesses which fall within the low risk category can be allowed investment by the general pubic too." He explained, "In other words, we need to match the risk profile of different types of investors with the risk profile of different businesses. We can also achieve investor protection by defining minimum investment size," he advised.
The SME listings at stock exchange will lead to a quantum increase in opportunity for small and medium businesses, which account for 90% employment generation in the country, to obtain funding for growth.
About the development of bond market, he highlighted that various initiatives are under way which include utilising stock exchange for issuance and trading of government bonds, putting in place framework for infrastructure bonds particularly for CPEC-related projects etc. Derivatives based on debt instruments shall also be explored for introduction in order to provide hedging and leveraged trading avenues to investors, said Sabzwari. Considering low trading activity in debt instruments, price discovery has remained an issue, which discourages issuance of new bonds and secondary market trading. Hence, the SECP chairperson said that establishment of an independent bond pricing agency will be explored which would provide fair prices of bonds on a daily basis.
Furthermore, globally securities markets provide a diversified product portfolio to cater to investors' growing investment appetite, which includes cash settled single stock futures, index futures, options etc. These products provide a healthy avenue for hedging and leveraged trading strategies in the market. In Pakistan the derivatives segment is negligible compared to the cash market, which is one of the reasons for limited growth. "Hence, my focus would be on developing a vibrant derivatives market at the PSE and launch of new products including equity derivatives, interest rate derivatives, Exchange Traded Funds etc," said Sabzwari.
The SECP chairman emphasised on establishing high standards of governance across the capital market and involving the market participants to follow the best practices in order to generate investor's confidence. In addition, he told Business Recorder the SECP is working on human resource capacity building and establishing standards of ethical conduct for the market participants through certification, he said.
He said that in addition to fundamentals of listed companies, performance of the stock market is also a reflection of the economic and political conditions in the country. Considering their role in the cost of borrowing and returns for foreign investors, both the exchange and discount rates have a direct impact on the market. The SECP chairman hoped that with stability in these rates and other macro variables, market performance should improve.