KARACHI (January 24 2003) : The Securities Exchange Commission of Pakistan (SECP) has cautioned 19 stock brokers to stay within the exposure limit to help stay afloat and avert any default.
Actually, the SECP, the stock market regulator, sent letter of caution to stock brokers last week to execute trading within their prescribed exposure.
These members in order to reduce their exposure and stay within the permissible limit unloaded their shares, which resulted in hefty selling in the market.
A leading trader said it is a routine matter as the SECP was monitoring actively the daily trading pattern of the members and strong vigilance from them to avert any major disaster forced them to caution the brokers.
Another market man said the timing was wrong and the index was on the downward hill when these letters were sent.
Hubco's decision not to declare dividend next month, will hold separate meeting in March and April to decide the pay out was enough to make a crater at the stock market.
He said the high badla volume also ignited selling pressure as the rates have skyrocketed which would soon forced the weak-holders to square their positions, adding it would certainly trimmed the exposure of the stock brokers.
The market since Monday has plunged by 337.17 points, or 11.4 percent to 2,617.49 points to date.
The punters at the stock market attributed one of the significant factors of decline in stock market is due to the letter of SECP, saying some of the stock brokers have violated capital adequacy limits.
The badla rates touched the high mark of 50 percent and now moved down to around 18 percent whereas the values changed hands reached over two year high of Rs 17 billion and on Wednesday it was around Rs 9 billion.
Some of the traders said that the calculation made by SECP has some error as they included future contracts and trading through T+3 system in the exposure of the members.
However, sources close to SECP that the regulator acted to make the trading system transparent so that all the risk management measures should be intact.
The badla in the past and now has wreaked havoc for the market. After the September 11, 2001 events, the market closed for a week.
Banks and financial institutions came for salvage and rescue an investment bank, holding long positions in the badla market.
The SECP letter issued to stock brokers reads, “It has been noticed with concern that they are violating capital adequacy. Records of the KSE show that actual exposure has exceeded permissible exposure”.
The representatives are expected to meet SECP officials next week in Karachi.
Shahnawaz Nadir, research analyst at WE, said the SECP has once again become more stringent about the exposure and capital adequacy requirements of brokers, adding in the buying euphoria, several brokers had taken positions that were beyond their financial capability to control.
This was increasing risks of defaults on part of the brokers. The SECP and KSE management are giving particular importance to the issue of exposure requirements.
This is compelling some brokers who have reached their exposure limits to offload the excess positions, even is some losses have to be booked by such off-loading in order to fulfil the exposure requirements.