SECP lifts ban on short selling from Nov

Securities and Exchange Commission of Pakistan (SECP) on Wednesday decided to lift ban on short selling in futures contract from November 2006 with a condition of making necessary changes in the KAT – the trading software at Karachi Stock Exchange (KSE).

At the same time, SECP has turned down the KSE proposal to allow short selling in October 2006 futures counter that was the long standing demand of local bourse.

In a communique, SECP said, “KSE is not ready to allow short sale under the new system, we have no option but to continue the ban on short sale for the October Futures Contract. Short sale shall therefore be allowed from November Futures Contract after KSE brings about necessary changes in its system and adopts the new system.”

The notification added, “We are concerned that KSE has now shown its inability to bring about requisite changes in the KAT to allow for short sale under the new system even though, KSE is already monitoring the five per cent of the free float position limit imposed on the brokers in the Futures market and is also monitoring short sale in excess of Rs50 million.”

Moreover, KSE has made an announcement during the day (Wednesday) session the In House Financing (Badla) would be available up till October 31, 2006. According to an early decision, In House Financing was prohibited from October 02, 2006, which has now become outdated itself.

Earlier, MD-KSE had written a letter to Chairman-SECP, recommending the apex regulatory body (SECP) to let the In House Financing continue for another 30 days instead of putting ban on badla from October 02, 2006.

In reply, SECP has allowed badla for another 28 days instead of 30 days.

Brokers expressed their satisfaction on the above revised decisions of the regulatory bodies and added that bulls would stage comeback at the Karachi bourse aggressively after the implementation of the new rulings.

“We, however, have demanded to allow badla for another 90 days after October 02, 2006,” said brokers.

They commented that short selling was a tool to run stock exchanges in upward direction, while KSE has huge potential to perform in this direction.

They expressed anger on not allowing short selling in October futures counter, but welcomed SECP decision to lift ban on short selling from November.

On the question of making necessary changes in KAT, they replied that first of all it was management responsibility to incorporate the requisite changes in KSE trading software and inquired themselves about the changes that SECP wanted to make in KAT.

Analysts belonging to other school of thought recalled the losses that some of investors incurred when short selling was allowed and when there was artificially presented liquidity crunch issue.

They said the changes would encourage speculative forces who might repeat the history at KSE crash on June 14, 2006 and March 2005. Speculators manipulate trading by using these kinds of measures (short-selling and excessive liquidity), they added.

They further added that the availability of in house financing and implementation of enhanced CFS cap to Rs55 billion with effect from October 02, 2006 would provide more than the required liquidity at KSE, that simultaneously increase the changes of bearing huge losses, they added.

Source: The News