KSE big fish vying to arm speculators

Posted on 09.20.06 by StockPK Team @ 12:32 pm    

The Karachi Stock Exchange (KSE) has recommended to Securities and Exchange Commission of Pakistan to let ‘in-house financing’ (Badla) continue for another 30 days, instead of putting a ban on it from October 2, an official source confirmed to The News here on Tuesday.

If the SECP, the apex regulator, accepts the proposal, in-house financing would be available till November 1, 2006.

Moreover, the Karachi bourse had also asked the SECP about the lifting of ban on short-selling in 30-day futures contracts, the source added.

A KSE source said M A Lodhi, Managing Director Karachi Stock Exchange, had written a letter to Razi-ur-Rehman, Chairman SECP, on Tuesday in which the MD proposed to let in-house financing work parallel with the Continuous Funding System (CFS), the limit for which was recently enhanced to Rs55 billion from Rs24.5 billion.

Earlier, the SECP and managements of the three local bourses at a meeting held here on September 11 resolved that effective October 2, there would be a complete ban on in-house financing; financing under CFS system would be enhanced to Rs55 billion and the number of CFS eligible scrips would be increased to 45 from 30 at present.

Commenting on the KSE proposal, a leading analyst observed that the speculative forces were once again preparing to launch a comeback at the Karachi stock market, as the two parallel financing systems would eliminate the issue of liquidity at the KSE at least up to November 2.

He calculated the sum of badla and enhanced CFS would be around Rs95 billion as in-house financing was roughly around Rs40 billion.

According to Tareen Committee on CFS, the Karachi stock market needs around Rs82 billion financing to run smoothly.

Moreover, some of the brokers were of the view the SECP should eliminate badla system in phases and implement CFS with enhanced cap simultaneously. Otherwise, investors would have to bear big losses. Muhammad Imran of JS Research believed one of the reasons for the lacklustre behaviour of the stock exchange in recent days was the ban on in-house financing (that was not reported), which was providing huge liquidity to leveraged buyers.

Another source informed that the SECP was likely to lift the ban on short-selling on futures counters from October 1.

The ban on short-selling was slapped at an emergency meeting on June 14, 2006, in the wake of huge losses recorded by the KSE 100-share index on that day.

On June 14, the KSE index beat all previous records of receiving battering in a single day, hitting seven-month lows at 8,766.98 points, a plunge of 547.93 points.

Another analyst said that lifting ban on short selling in 30-day futures and allowing badla to coexist with enhanced CFS would push the equity market to the situation prior to March 2005 historical crisis, as all the speculative tools of that time would again be available to the speculators.

Moreover, the likely introduction of 60 days, 90 days future counters and optional counters would also help to reactivate the sidelined investors, he said adding that these counters would help generate volumes, which was the need of the hours.

Source: The News