Transcript SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN

SECURITIES AND EXCHANGE
COMMISSION OF PAKISTAN
PAKISTAN
COVERED AREA
POPULATION
LABOUR FORCE
GDP SIZE
GDP GROWTH
PER CAPITA INCOME
INFLATION RATE
MAJOR CROPS
MAJOR INDUSTRIES
DOMESTIC SAVING RATE
796,000 Sq. Km
137.50 Million
39.40 Million
Rs. 3,120 Billion or US$ 54 Billion
4.9%
US$ 443
3.11%
Cotton, Wheat, Rice, Sugar Cane, etc.
Textile, Polyester, Engineering,
Fertilizer, Cement, Sugar
14.00%
Source: Economic Survey of Pakistan, 2000.
SECURITIES AND EXCHANGE
COMMISSION OF PAKISTAN
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Securities & Exchange Commission of
Pakistan was established w.e.f. January 1,
1999 under Securities and Exchange
Commission of Pakistan Act, 1997.
Corporate Law Authority (CLA), a
Department of Ministry of Finance, was the
regulatory authority for capital market and
corporate sector until December 31, 1998.
The Commission attained financial autonomy
w.e.f. July 1, 1999.
SECURITIES AND EXCHANGE
COMMISSION OF PAKISTAN
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The Commission comprises of Commissioners
including a Chairman as may be fixed by the Federal
Government. The minimum number of commissioners
shall be five and maximum number of commissioners
shall be seven. The Chairman is the Chief Executive
Officer of the Commission. The Commission presently
comprises of five Commissioners including the
Chairman.
A Policy Board consisting of seven members has been
established. The Chairman of the Commission is also
the Chairman of the Policy Board.
SECURITIES AND EXCHANGE
COMMISSION OF PAKISTAN
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The Commission comprises of Commissioners
including a Chairman as may be fixed by the Federal
Government.
The
minimum
number
of
commissioners shall be five and maximum number of
commissioners shall be seven. The Chairman is the
Chief Executive Officer of the Commission. The
Commission
presently
comprises
of
five
Commissioners including the Chairman.
A Policy Board consisting of seven members has been
established. The Chairman of the Commission is also
the Chairman of the Policy Board.
SECURITIES AND EXCHANGE
COMMISSION OF PAKISTAN
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Securities & Exchange Commission of Pakistan
was established w.e.f. January 1, 1999 under
Securities and Exchange Commission of Pakistan
Act, 1997.
Corporate Law Authority (CLA), a Department of
Ministry of Finance, was the regulatory authority
for capital market and corporate sector until
December 31, 1998.
The Commission attained financial autonomy w.e.f.
July 1, 1999.
STOCK EXCHANGES
There are three stock exchanges in the country.
Year of Establishment
Number of companies
Listed Capital
Market capitalization
Average daily turnover
KSE
1947
763
230
3.83
LSE
1971
618
208
3.47
ISE
1992
285
162
2.66
Rs in billion
407
366
298
US$ in billion
6.78
6.10
4.97
Shares in billion
Rs in billion
US$ in billion
247
9.5
0.16
68
2.4
0.04
8
0.1
Rs in billion
US$ in billion
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KSE has emerged as the key institution of the capital market of Pakistan.
CAPITAL MARKET REFORMS
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The stock market was opened for foreign
portfolio investors on equal terms with local
participants in May 1991.
Commercial banks, Investment banks, Leasing
Companies, Modarabas and Mutual Funds were
permitted to be established in the private sector.
Privatization of state-owned enterprises.
Pricing of shares was freed for primary offerings.
IMPACT OF REFORMS
Sector
No.
Equity Mobilized
(Rs. in million)
Commercial Banks
Investment Banks
Modarabas
Leasing Companies
Mutual Funds
13
14
47
32
13
8,227
3,366
8,190
4,742
1, 612
IMPACT OF REFORMS
Market Indicator
1949-1990
1991-2000
Increase
Listed Capital
(Rs. in million)
28,056.00
230,250.90
721%
Market Capitalization (Rs. in
million)
61,750.00
407,073.00
559%
Average Daily Turnover
(Shares in million)
1.10
247.00
20,572%
No. of Shareholders
0.20
1.50
650%
IMPACT OF REFORMS
Pakistani companies were able to access
international capital markets.
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Euro bond of Dewan Salman and Exchangeable
bond of PTCL were launched.
GDR’s of PTCL, HUBCO and Chakwal Cement
were issued to foreign investors.
It was possible to float projects with all equity
capital structure. Ibrahim Fiber, Dhan Fiber,
Lucky Cement and Chakwal Cement made
placements to international investors.
The above issues together with portfolio
investment mobilized around US$ 2 billion.
IMPACT OF REFORMS
The stock market upsurge in 1991 and 1993-94 played a pivotal role
in attracting resources for privatization and adding production
capacity in industrial sector.
 63 public sector companies were privatized and 15% of PTCL
shares were dis-invested raising Rs.50 billion.
 Financing of mega projects and expansions were made possible
in power, polyester fiber and cement sectors, as they were
profitable at that time.
Sector
New Capacity
% increase
Power Projects
PSF
Cement
1,884.36 MW *
263,220 MT
10.465 MT
30.00**
220.27
181.83
* Listed power projects.
** of energy produced in the country.
RECENT REFORMS
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Companies Ordinance and Securities and
Exchange Ordinance were amended to allow
companies to issue debt securities to public.
Controller of Capital Issues Act was repealed.
Capital issue rules were issued.
SECP Act was enacted and SECP was
established.
Buy-back of shares.
Voluntary de-listing.
RECENT REFORMS AND EFFICIENCY
ENHANCEMENT MEASURES
RESTRUCTURING OF THE BOARD
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In 1997 Articles of Exchanges were amended to
increase the number of non-member directors to
strengthen the Board of Exchanges and creating a
position of non-member Managing Director. 40%
of the Board seats now go to non-members
including nominees of the Commission.
RECENT REFORMS AND EFFICIENCY
ENHANCEMENT MEASURES
AUTOMATING TRADING SYSTEM
The open-out cry system has been replaced by an automated
trading system at the Exchanges. The impact of automation on
turnover is apparent from the data given below: Year
1996
1997
1998
1999
2000
(Turnover
in
Million)
29
56
77
127
247
Status
Pre-automation
Partial-automation
Total Automation
Total Automation
Total Automation
RECENT REFORMS AND EFFICIENCY
ENHANCEMENT MEASURES
AUTOMATION OF MARKET INFORMATION
SYSTEM
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The Exchanges have made arrangements to provide
information on real-time basis to the investors through
the Internet. Now general public can access and down
load current information from the web of Exchanges.
The information regarding the trading activity are also
available through telecommunication networks by
Fascom, through Tele-text Technology by Wave Tech in
Pakistan and 37 other countries and through Reuters
across the world.
RECENT REFORMS AND EFFICIENCY
ENHANCEMENT MEASURES
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Electronic book entry transfer of securities i.e.
Central Depository System has been set up to
eliminate physical settlement of securities.
The CDS is managed by the Central Depository
Company of Pakistan Limited, which has been
sponsored by the stock exchanges and leading
local and international financial institutions.
Presently 97 percent of settlement is routed
through CDS.
CONT…
CONT…
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Investors Account Services have been introduced
in order to facilitate individual investors to have
their account directly with CDC.
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With the implementation of CDS and automated
trading system, trading and settlement have
become transparent and efficient.
RECENT SETTLEMENT CRISES
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During May, 2000 the volume of trade grew to very high
levels along with an increase in share prices.
There were reports of over trading and possible cornering
of certain shares reportedly by some major market
operators.
These operators were taking positions on borrowed
capital.
In the process they took advantage of the bullish market
and, consequently, the prices were unnecessarily pushed.
Initially, the operators were obtaining funds from the
market at low rates.
RECENT SETTLEMENT CRISES
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When the operators were exposed as weak holders, the
market started declining, particularly, in shares held by
these operators and, as a consequence, the market
finance rate went up (from 14% to 50%) in those shares.
On 26 May, being the settlement date, these operators
failed to make the settlement.
Due to this settlement problem the KSE index went
down from 2000 to 1400.
The exchanges remained closed for one day.
The KSE declared one of its brokers as a defaulter and
LSE suspended six of its brokers against whom
proceedings are in progress.
REFORMS AND EFFICIENCY
ENHANCEMENT MEASURES
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SECP had to intervene and, among other rescue
measures, created a lifeboat.
Due to these measures, the settlements were
possible and the market started recovering.
SECP appointed an Enquiry Committee
consisting of private sector professionals to
investigate the causes of the crisis.
Even before the report of the enquiry, the SECP
took certain measures to reform the market discussed in the later part.
CONT…
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The report has since been received and also
published in the press.
SECP is in the process of giving hearings
to the accused operators before taking
action against such persons.
REFORMS AND RISK
MANAGEMENT MEASURES
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On the advice of the Commission the Exchanges have agreed to
further strengthen the risk management system. The measures
include:
Minimum Net Capital balance has been increased by ten times to
Rs.2.5 million. This will be effective from January 1, 2001.
Capital Adequacy concept for brokers is being introduced. The
brokers would now be allowed to take position upto 25 times of
their net capital balance w.e.f. January 1, 2001.
Exposure deposit requirements are being made more stringent.
Internationally accepted T+3 settlement system will be introduced
in the Exchanges shortly.
NCSS project is also under implementation. The introduction of
T+3 continuous Net Settlement would help in reducing risk.
OTHER REFORMS
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Under ADB program loan the whole regulatory
framework is being improved and strengthened.
Rules of asset securitization have been
introduced.
Takeover Law is being enacted.
Impediments in the development of fixed income
securities are being removed.
Venture Capital Rules are being introduced.