20000205

KSE should introduce

new ways to raise

capital flow: Ishrat

RECORDER REPORT

KARACHI: The Governor of State Bank of Pakistan, Dr. Ishrat Hussain, has said that the three stock exchanges of the country should abolish the conventional way of dealings and should also introduce new instruments to raise capital with lower expenses and costs, improving the securities market in the country.

The governor visited the Karachi Stock Exchange (KSE) on Thursday and met the chairman of the KSE Arif Habib and board of directors and former office-bearers of the exchange (partly reported in Friday's issue).

Dr Ishrat Hussain endorsed the proposal of the KSE about the disinvestment by the government in the state-run companies through the stock exchanges which would help in improving the market size.

He said that the members of the stock exchanges could play a major role in this regard. The governor said that the proposal regarding conversion of ICP Mutual Funds into open end mutual funds would be looked into by the relevant government functionary to protect the interest of the small investors.

The governor suggested to convert the proprietory brokerages into corporate brokerage houses, which was needed to broaden their services and expand their operations throughout the country. He added that it would help in building a diversified investors base in the country. He said that the stock exchange was a vehicle for capital formation and in order to bring depth in the market the small investors' confidence had to be strengthened in the operations of the stock market.

Dr. Ishrat Hussain placed some more suggestions before the members for improving the working of the stock market and protecting the interest of the investors. He emphasised the need for review of the existing net capital balance requirement. He pointed out that there was a continuous need of monitoring the risk management measures. He also urged upon the brokers to open their branches outside Karachi and take the benefit of new technology so that the equity investments were familiarised amongst the small investors.

Chairman, KSE Arif Habib, in his address of welcome, urged the governor, to use his good offices in getting the following suggestions implemented by the government to further develop the stock market activities.

Ñ In order to improve the market size and make it comparable with the other regional markets, the government disinvest a small portion of its holding in various government owned enterprises and have these companies listed at the stock exchange.

Ñ The activity of the foreign investors in their portfolio investments is not transparent nor is it disclosed to the market. The SBP can play an important role in regulating dissemination of this vital information for the benefit of investors.

Ñ Disclosure of SBP policy in relation to status of Bankers Equity Limited.

Ñ Pursuant to conditions of the Asian Development Bank the NIT and ICP are to be privatised. In order to protect the interest of public shareholders all the ICP Mutual Funds which are closed-end should be converted into open-end mutual funds before privatisation.

Ñ The KSE being a non-profit organisation enjoying a full tax exemption status until a few years back, has been subjected to income tax. In view of the fact that all its income is being used for development of its infrastructure to create healthy, fair and transparent market the tax exemption should be restored.