Securities and Exchange Commission of Pakistan (SECP) Chairman Mohammad Ali said Tuesday that the process of demutualization of stock exchanges would be completed by September, 2012 and the SECP has conveyed to the stock exchanges to improve their internal systems, enforcement and supervisory mechanism for efficiently working under demutualised environment.
The SECP Chairman informed reporters here that the SECP would approve the development plans of the stock exchanges by July 21, 2012. The process of the demutualization is underway as per agreed timelines with the bourses. The SECP is examining to allow 'Intra-Day-Shorting' (trading of shares), however, it would not allow the blank selling of shares. The 'Intra-Day-Shorting' has some perquisites and is likely to be subject to volume of trading in a specific period. The SECP would also separate the trading of shares in 'Odd Lots' and 'Lots Shares' for clarity in stock market transactions and formal announcement would be made within next two weeks.
The SECP Chairman said that the investor's education has been given top priority to encourage investment in the stock market. The people in small cities and far-flung areas have to be given access to the stock market for which basic investors' education is needed. In this regard, the SECP has decided to implement a detailed plan on investor's education. The investor's education plan covers three kinds of investors including old/retired people, general investors and youngsters. It has been decided that all the stakeholders would collectively launch the investor's education programs including seminars, training workshops, educational material etc. Earlier, each entity was unilaterally conducting its own investor's education programs. Now, it has been decided that all the entities like stock exchanges, SECP and others would collectively conduct investor's education programs.
In Pakistan financial literacy is very low ie 14 percent which is lowest in the region. Our financial literacy rate is even low than the Nepal and Bangladesh. Keeping this in view, we have launched an investor education program to give basic information about the stock market to the investors. Even the general public is not aware of the basics terminologies of stock exchanges and they have no access to brokerage houses etc in small cities. This makes it very difficult for the small and retail investors to search for any place to invest in the shares traded at the stock market. The issue could be effectively handled through investor's education program.
The data revealed that the total number of stock market investors in Karachi is 140,000 having CDC accounts; Lahore 51,000; Islamabad/Rawalpindi 25,000; Faisalabad 6,000; Multan 4,000 and total number of stock market investors in other cities is 46,000. "This shows that people in other cities do not even have access to trading in the stock markets," Chairman said, "This part has to be done by stock markets and the brokers."
The SECP in coordination with the brokers and the managements of three stock exchanges are working on various programmes to develop investors' education modules across the country.
"However even if the investors are motivated and willing to enter the stock markets there has to be relevant infrastructure across the country so that the public can participated in the shares trading," Chairman SECP Muhammad Ali said. He added that the exchanges and the brokers also need to develop various products to attract the investors in stock markets as currently only equity trade is being executed in the capital markets.
Referring to the recent reforms, SECP Chairman highlighted Capital Gains Tax; demutualization of exchanges; Code of Corporate Governance; e-IPO; Solvency and Takaful Rules; reforms in Mutual Fund Sector and Capital Market Development Plan. Giving details of the annual average return on different investments during 2000-12, he said that the annual return on equities is 30 percent; gold 20 percent; DSC 11 percent; PIB 10 percent; T-Bills 10 percent and annual average return on deposits comes to 4 percent.
He said that the average daily turnover of equities stood at $54.10 million in 2012 against $39.04 million in 2011. The average daily turnover of equities-derivatives is $9.17 million against $6.814 million. However, the average daily turnover of the commodity/currency futures is $38 million in 2012 against &35 million in 2011.
Reefing to the National Stock Exchange of India, he said that the market capitalization has reached $1500 billion in 2012 against $70 billion in 2011. The average daily turnover of equities was $3.5 billion in 2012 against $0.3 million in 2011. The capital raised during 2012 was $15 billion against $1.8 billion in 2011 at the NSE-India.
The SECP Chairman said that the governance and HR certification has very important role in education of the investors. The governance and HR certification covers responsible and ethical market participants through certification and capacity building of market participants in Pakistan. The existing programs included Stock Brokers Certification Program and Mutual Fund Distributors Certification Program. Under future programs, it include Pakistan Markets and Regulation Certification Program; Compliance for Equity Brokerage Houses and Fund Management Companies Certification Program; Risk Management and Market Surveillance Certification Program; Financial Advisors Certification Program; Commodities Brokers Certification Program; Securities Clearing and Settlement Operations Certification Program; Portfolio Management Certification Program; Financial Analysis, Modeling and Valuation Certification Program and Director's Certification Programme. Responding to a query on Moody's Credit Rating of Pakistan, SECP Chairman said the recent credit rating by Moody's would have a negative impact on investment in the country. Overall foreign investment in stock market has decreased during the last few months.
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