Mr. Ashraf Bava is the Chief Executive of Nael Capital (Private) Limited, a corporate member of Pakistan Stock Exchange. He became the CEO of Elixir in 2005 and has served on the Board of Karachi Stock Exchange Guarantee (Ltd.) and National Clearing Company of Pakistan (Pvt) Ltd. As part of his volunteer work, he is serving as the President and Advocacy Chair of the CFA Society of Pakistan since October 2013.
Mr. Thomas Ma is the CFA Institute Director of Government and Regulator Relations, responsible for researching existing and emerging regulatory practice frameworks and accreditation schemes in Asia Pacific. He leads efforts in the region to explore and obtain waivers and recognition opportunities for CFA Institute credentials as well as increase awareness of their professional development programs among regulators, universities, and professional organisations. He is a member of the American Institute of Certified Public Accountants and Hong Kong Institute of Certified Public Accountants. He is a certified Financial Risk Manager (FRM) and a CFA charter holder.
<B>BR Research: Tell us about the CFA Institute and what is your engagement with the SECP?</B>
<B>Thomas Ma:</B> CFA Institute is a global not-for-profit investment education and professional organisation with offices in the United States, United Kingdom, Belgium, Hong Kong, Beijing and Mumbai. We are the leading voice for developing and setting the highest educational and professional standards in the investment industry.
We have over 135,000 members around the world. In Pakistan, we have 250 active members and every year we have over 1,500 candidates take our CFA program exam in Karachi and Lahore.
Our goal is to serve the interests of investors for the ultimate benefit of society. There's a trust issue between investors and professionals after the financial crisis of 2008. Since then, we've been promoting the 'Putting Investors First' initiative globally by educating investors about what they need to know when they hire investment managers and financial advisers to manage their money. CFA charterholders have made the commitment to put investors first.
Together with CFA Society Pakistan, we want to work with the SECP to promote the Statement of Investment Rights in Pakistan. It is simply ten rights that any investor should expect from their financial service providers. For example, you should expect your financial advisers to be honest, independent, and put your interests above the firm's.
Today, the SECP and CFA Society Pakistan will sign an MOU to jointly raise awareness of investor rights in the country. It sets the framework to promote these 10 simple statements through newspapers, websites, seminars, so the investing public can learn and know their rights.
<B>BRR: How successful has the program been?</B>
<B>TM:</B> We have been doing this around the world for the past few years. Last May, over 85,000 CFA Institute members participated in local events that called attention to the needs and rights of investors.
Investors around the world are asking more questions and demanding more from their investment management professionals. We have heard investors asking their financial advisers: "Can you explain to me my rights?" before they sign contracts. In markets like Hong Kong, financial advisers are required to explain to investors their rights and people are required to sign an agreement confirming that they understand their rights before making investment decisions.
<B>BRR: How can the gap between public and private equity be reduced? What is CFA doing in this regard?</B>
<B>TM:</B> This is an important question in particular for emerging markets such as Pakistan. In developed markets, over 80 percent of equities are managed by institutional investors. But when it comes to emerging markets it is the other way round - most retail investors are managing their own money. For retail investors, it may not be in their best interest to do so because they may not have the necessary skills and experience to compete with the institutional investors. This becomes a big risk for such investors.
At CFA Institute we want to educate investors about the importance of hiring the right investment professionals to help manage their money.
<B>BRR: What regulatory areas do SECP need to tighten up in Pakistan?</B>
<B>AB:</B> SECP is going in the right direction, but I would say they should slow down the pace otherwise it can disturb the market. We can already see that in the volumes, which have gone down drastically since the second half of 2015. The market is not altogether ready for such change in regulations in one go. Broker regulations is coming up, which brings in a lot of safety measures for retail investors and puts in restrictions on brokers but it's absolutely necessary to give enough time to let the intermediaries adjust to it; the focus should be to improve the strength of intermediaries as well as investors both in quality and in numbers. Again, my only concern is that regulations need to come in phases; it should spread over the next 5 to 10 years rather than in the next one to two years.
<B>TM:</B> That's actually a very common problem in emerging markets. Everyone is trying to impose more and more regulations, especially after the global financial crisis. But Ashraf is right - what is the right pace of implementing these regulations? We have seen other countries moving too fast. It may actually cause more unnecessary volatility in the industry.
<B>AB:</B> We don't have any derivatives market; it's a plain vanilla market. The market needs to be developed first; regulations and development go hand in hand. I remember when I was serving as a Director on the KSE in 2011, our Board approved Options but it's been more than 5 years and nothing has been done about it. Similarly, Trading Halts and Markets Halts were also approved in 2011 by the Board; in fact, I was the one who proposed it but the management instead of implementing it brought it back to the Board, which was then sent back to the committee level for further review and since then there was no sign of it. SECP is now enforcing the same - my whole point is why the exchange should put the regulator in a situation where they cannot avoid the inevitable, especially the things which are good for the market in the long term? PSX should adopt regulations and introduce products which are a success globally and come out of the influence of some of the big brokers.
<B>BRR: What do you think about the disclosure requirements in Pakistan?</B>
<B>AB:</B> The market is still in a nascent stage and I am sure there is room to bring in more transparency through disclosure. For instance, if you look at the free float, there is a certain percentage of free float that should be in the market. But we all know these sponsors have shareholdings in different names as well which are not disclosed. So, this is one area where they need to do more. The disclosure rules are there but I guess we need to focus more on implementation phase.
<B>BRR: Is the CFA market becoming saturated?</B>
<B>TM:</B> No Our current market penetration rate is less than 5% on a global basis. By market penetration I mean the ratio of CFA charterholders working in the financial service industry. For example, in Pakistan we currently only have 250 members, but the size of the financial service sector is close to 15,000 people. In China, where there are over 6 million people working in the financial service sector, we only have 3,000 CFA charterholders. So no, I don't think the market is becoming saturated yet.
<B>AB:</B> The growth is coming from the Asia Pacific region. The CFA Program candidates in these countries are close to 30,000 and increasing every year. As far as the US and West are concerned, I think the number has flattened a bit.
<B>TM:</B> Emerging markets is where the growth will be. In China and India last year, we had a total of 40,000 and 20,000 students taking the CFA Program exam respectively.
<B>BRR: What risk CFA is facing?</B>
<B>TM:</B> One is trust, as we've talked about. We need to educate the public about the qualifications that a CFA charterholder brings - what it means, what it can do for investors. We need to work harder to promote CFA Institute and CFA charterholders as a brand.
<B>BRR: CPA has an agreement state-wise with some universities that if you have a Master's in accounting, instead of three years you can have two years' work experience. Is CFA moving in that direction?</B>
<B>TM:</B> In order to be a CFA charterholder, a candidate needs to pass three CFA Program exams and have four years of qualified work experience in investment decision making. The CFA Program is not an academic one - rather, it is focused on the global investment management profession from a practitioner's standpoint. And that's why the four years of qualified work experience is so important.
Another point I want to make is that CFA Program curricula are incorporated into more than 300 business school programs around the world. In Pakistan, the Institute of Business Administration and Lahore University of Management Sciences are CFA Program Partners.
Finally, we have commissioned the UK NARIC to undertake a benchmarking study to compare the CFA qualifications against the education systems in various countries. UK NARIC benchmarked CFA Level III and the CFA charter at a postgraduate degree level (QCF Master's Level 7).
<B>BRR: What is your take on market self-regulation?</B>
<B>TM:</B> At CFA Institute, we believe that despite differences in the securities regulatory environment that existed out the outset, self-regulated organisations (SROs) and the market expertise they offer are now more important than ever. In fact, the ever-evolving complexities of the securities markets argue for more, rather than fewer uses of SROs to take advantage of their understanding of market practices.
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