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Enhancing the Transparency and Credibility of the Capital Market

The capital market is an indicator of economic progress while smoothening and accelerating the entire process for economic growth. Resources are strategically allocated in the developmental needs of the country that results in progressive expansion in trade and industry, henceforth promoting a balanced economic growth.

The year 2014 has proven to be a year of growth and high spirits for the Pakistani capital market. Pakistan ranked third in 2014 amongst the top ten best performing markets in the world; for the third consecutive year. Throughout the year, the benchmark 100-index of the Karachi Stock Exchange (KSE) exhibited outstanding performance, touching historic levels in terms of value and volume.

The observable positive trend contributing to the markets bull-run were the government’s business-friendly reforms, improved macro-economic indicators including record forex reserve levels, increased confidence shown by international donor agencies, government’s energy sector initiatives and China’s interest in investments over the years.Furthermore, substantial foreign investments in equity markets which captured considerable free float of the market, declining dollar-rupee disparity, and government of Pakistan’s secondary market offerings has a major role to play.

The recent visit of the President of China has unwrapped a number of opportunities in Pakistan and will further accelerate the bullish trend in the capital markets. With up to $46 Billion of investments till the year 2018, though 51 MoU’s, where $24 billion are of up and running projects in the energy sector will not only boost the economy but atrickledown effect will positively impact Pakistan at a micro level.

With all the Foreign Direct Investments and influx of money the regulatory framework of the country needs a transparent and stringent mechanism. The Securities and Exchange Commission of Pakistan (SECP) is working on a continuous basis, taking the initiative to protect investor’s interests while broadening the reach of the capital markets in Pakistan; working with all three stock exchanges, Central Depository Company of Pakistan (CDC), National Clearing Company of Pakistan (NCCPL) and major asset management companies.

It has expedited regulatory approvals for the listing of new companies, while launching new products such as REITS (Real Estate Investment Trusts) and government debt securities secondary market trading.Furthermore, SECP has taken a lead in pushing forward the launch of Small and Medium Enterprise (SME) segments and approved SME regulations for Islamabad Stock Exchange in 2014 and recently approved SME regulations for the Karachi Stock Exchange as well.A draft regulatory framework for private equity has been consolidated, which can lead to a quantum increase in opportunity for small and medium businesses, accounting 90 percent employment generation in country and easy to obtain funding for growth.

Many other developments need to be initiated within the capital markets, for example the narrow investor base is a concern in Pakistan, as the level of investments do not reach expected level. At present there is an uneven playing field, which is a major impediment to growth and development of capital market in Pakistan.

There are institutions like NCCPL, which offer innovative solutions to overcome the issue of low investor’s base in Pakistan. Products like the National Custodial Services (NCS) offers many benefits to new investors that mainly include net settlement of trades directly with NCCPL, safekeeping of securities and deposits, deposit and Collection of funds through online banking channel, competitive Returns on cash balances and direct collection of capital gain tax.This service is a means to strengthen the efficiency, transparency and convenience of capital market operations for new investors and broadening the investor base,with the option of directly settling their trades and transactions with the NCCPL and maintaining the custody of the securities and cash with NCCPL. New investors can continue to execute trades and transactions in the capital market with the Trading Right Entitlement Certificate (“TREC”) Holder(s) of their choice.

Regulatory bodies and the Securities and Exchange Commission of Pakistan are working independently and alongside each other to strengthen the operations in the capital markets through stringent market monitoring, introduction of structural reforms for market development and outreach, surveillance function and enhancing the scope of the capital markets through media and analysts. Their utmost focus is on the protection of the investors and their interests, which further led SECP to form a committee comprising SECP, CDC and NCCPL professionals to probe into the reasons for any system failure and submit a report within a week’s time in order to secure its investors while embedding trust into the capital market operations.

It would be fair to say, regulatory bodies are working to improve and strengthen the credibility of the overall capital market while providing a platform for long term finance generation for the country's businesses while keeping in view the larger national interest and long term growth and viability of Pakistan's capital market.

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