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CDC launches Investor Account Services at LSE from today

RECORDER REPORT

LAHORE: The Government will shortly be embarking on an ambitious privatisation programme to induce private sector investment, which among others, will also address the issue of invest confidence, especially to those based abroad.

This was stated by Shahid Hafiz Kardar, Punjab Minister for Finance and Excise & Taxation, while addressing the opening ceremony of Investor Account Services of Central Depository Company (CDC) Limited here on Sunday.

The CDC is launching its Investor Account Services at Lahore Stock Exchange from Monday.

The Minister said in the privatisation programme the stock exchanges will play a major role in broad-basing ownership, in mobilising resources and serving as a tonic for activating the stock exchanges. The establishment of CDC in Lahore, therefore, comes at an opportune juncture, he added.

The Asian Development Bank, he disclosed, has initiated capital market reforms requiring restructuring and modernisation, in which the CDC is a key component. This programme of CDC to dematerialise scrips will improve both the liquidity of the market and the efficiency of the system through the elimination of the institutional arrangement that requires the physical movement of securities.

The extension of CDC facilities to Lahore, the minister said, has been a major achievement in this effort.

To increase efficiency, cost effectiveness and fairness of the system and to reduce payment and systematic risks there was an urgent need for putting in place an automated harmonised central clearing and settlement system for transactions being presently conducted in different trading systems. Laws have been formulated in this regard which now requires to be implemented, he said.

Future efforts needed to be directed to the development of on-line trading through the net and of trading in debt securities, he stated.

"We also need to distinguish between different categories of investors based on their ability to evaluate risk.'' There is also need for a regulatory framework that requires stock brokers to submit their audited financial statements for review to the Securities Exchange Commission of Pakistan (SECP).

There is also a need to reconsider the present system that allows holding of inactive membership as long-term investments. A policy was now long overdue for activating these memberships, he added.

About the trade reporting system, Kardar said that this should require brokers to declare if the transition is being conducted in their capacity of principals or agents. However, the information is not being compiled and reported to the management of the respective stock exchange, he deplored.

In the interest of greater transparency and to check the insider trading, stock brokers should not be on the boards of directors of listed companies, since it is a clear conflict of interest, he suggested.

Speaking on the occasion Chairman of SECP Shamim Ahmed said that establishment of CDC has been one of the most significant development in the capital market of the country in the recent years. By providing electronic book entry system, it does away with physical handling of shares which has improved the efficiency of the market, he said.

"The commencement of CDC operations in 1997, has been an arduous journey through which we had to prepare the structure of the institution, formulate and promulgate its legal frame-work, seek approval of the provincial governments, educate the members of the stock exchanges and the listed companies." In fact this institution represents an outstanding example of the close coordination between the regulatory body and the stock exchanges on the one hand while the listed companies on the other, he observed.

The establishment of the CDC was only part of the process of the transformation of the capital market structure, which has taken place during the last four-three years. The road map for the restructuring of the capital market was provided by the capital market development programme of the Asian Development Bank, which became operational in 1997. The programme comprehensively covers a wide range of aspects of capital market development.

"The major tasks which we have undertaken in the recent past include preparation of corporate plan and operationalisation of SECP, updating relevant laws and rules, amendment of Companies Ordnance and Rules etc. Due to our efforts 44 companies have recently declared dividends after a lapse of five years, while another 19 have promised to declare the same shortly," he claimed.

Later, to a question about his resignation as SECP chairman he said that he has not resigned but has requested to the government to relieve him from the office.

Earlier Arif Habib, Chairman of CDC, in his welcome address said that the implementation of CDC in Pakistan has ushered in a new era of a fast, modern and efficient delivery and settlement system which is a geographically neutral depository and even investors from Karachi and Lahore and Islamabad can now make delivery of securities with the push of button to each other through computerised book entry system.

The main objective of this system was to expedite the securities induction process and open maximum accounts in the CDC. "So far 302 companies have been inducted in CDC," he stated.

The Investor Account Services was inaugurated in Karachi on August 15, 1999 and so far 440 investor accounts have been opened, he said. From tomorrow this service will also be available at Lahore which will go a long way in enhancing the confidence of the investors, he added.