The Securities and Exchange Commission of Pakistan (SECP) has recently made amendments in its legal requirements in the interest of the market. However, information asymmetry in the revised process and regulations makes one wonder if everyone is at the gaining end.
Large companies with a team of professionals to guide them and take informed decisions may not be able to empathise with a small investor whose transactions are as informed as the floating information in the market. There is a dire need to educate all investors about the options available to them and ensure that the processes and regulations are more transparent. Easy access to correct and updated information is the key to ensure gains for everyone in the market.
It is the responsibility of the SECP to mitigate the risks faced by an investor and to educate them but the process is not transparent enough. Even though risk is benefiting the market, there is a need to mitigate the risk and ensure that the process are clearly defined and regulations strictly followed, as lack of clear information acts as a barrier for new investors to enter the market.
SECPs recent move to change the Capital Issue Rules and allow companies to issue shares against goodwill highlights the role of the regulator as an information provider. Since goodwill is an intangible asset and cannot be truly valued, it is the responsibility of the SECP to approve the issuance of shares that are worth their value.
While this move has facilitated companies that want to raise more equity, it must simultaneously increase the scrutiny of the accounts of these companies to ensure that issuance of shares against an intangible asset does not jeopardise investors.
As a neutral regulator, it is the duty of the SECP to improve transparency in the audit function and ensure that small investors, who unlike large companies don have a team of auditors and brokers to make informed decisions, are fully informed.
Ever since the appointment of the new chairman of the SECP, the regulator has made headlines often with a plethora of policy measures as well as appointments to posts that had been vacant for some time before his arrival.
However, when gauging the impact of SECPs measures on equity trade, it would be pertinent to note whether the average retail investor is more informed about market risks and conditions as well as rights and obligations as compared to the 2008-09 period when the market witnessed a series of meltdowns that drove away many small investors for good.
After all, whatever the means employed by the regulator may be, the ends sought must improve information symmetry and transparency at the countrys bourses.