How to save the market from poor disclosures

Earlier this week, Sazgar Engineering sent out a notice to Pakistan Stock Exchange (PSX). It simply read the companys production and sales numbers for February 2017. While Sazgar has been releasing its monthly numbers for years now, how many other companies at the exchange follow such a practice?

This column hasnt researched the information disclosure behaviour of all the 600 plus listed firms at the PSX. However, based on our experience thus far, it is safe to say that Sazgar and handful of other firms that might exist at the bourse are rare species. And that is not how it should be.

There are four other important changes that need to be brought about in so far as public disclosure of listed firms is concerned. First, a sense of market guidance by way of periodic analysts briefing, especially at the time when firms launch their new products or services.

Second, a directors report needs to be released alongside the quarterly results. The current regulations do not force listed firms to release directors report at the time of release of their quarterly results, which is why, nearly all listed firms simply notify what happened during the period (by putting up their financial results) and never bother telling why.

This is poor corporate governance, and firms would do well to take a leaf from Lucky Cements directors. Sources privy to the firm tell us that Luckys directors are not super-humans, nor super efficient robots. Yet along with each quarterly result, these mortal beings release their balance sheet, directors report, details of production/ sales including product-wise sales break (export/local sales), and updates of new or ongoing projects. The bottomline being: good and timely information disclosure is possible.

Third, a directors report ought to be specific. Most directors reports of listed companies simply talk about broad macroeconomics, and political or security environment, and how it left an impact on their business. This is especially the case when firms havent performed well in a given period. Is that the best Pakistani boards can do? Surely, the shareholders have a right to know the specifics.

Fourth, it is noted that business associations, such as the APCMA, release their monthly production/sales numbers to some of their favourites in the brokerage industry, much before they release the numbers officially on their website or with the media. These brokerage houses then share those numbers with their select clients giving them an unfair advantage in trading activities. This is a classic example of systematic information asymmetry.

In light of this, business associations in Pakistan, especially those whose member firms are fairly represented at the bourse, need to be brought under regulation to ensure the release of relevant and timely industry wide data in a manner that does not give an unfair advantage to the big clients of select brokers.

Between the two regulatory bodies that govern business associations, the DGTO and the SECP, the latter is most relevant to govern such matters. The SECP is busy spring cleaning the market these days, nabbing those defaulted brokers and conducting scrutiny of many others. This spring cleaning should also extend to the companies and business associations to ensure good and timely information disclosure. Whether it will take it up or not depends on how serious the regulator is about information disclosure and transparency in the market.