Committee asked for deeper analysis to combat financing issues at equity market

The government has asked the 'Shaukat Tarin Committee' to submit deeper analysis to combat the financing issues at the equity market and other tools in vogue at the international bourses in a couple of days. According to sources, the government on Monday received the synopsis of the 'Shaukat Tarin Committee' report on the traditional badla financing covering the issues arising following the liquidity crunch, capping of badla and conflict of interest.
"They have to submit more details on these areas and, above all, proposals to the government on the continuation of the badla financing in case of withdrawal of funding from the banks and financial institutions following the plunge in the share prices," sources said.
In the past, on several occasions, the market received heavy battering because of the withdrawal of funds from the financiers, leading to substantial difficulties for investors and the broker community.
Sources said that within three days the committee would furnish details pertaining to financing issues. Moreover, they have to submit details in practice at the international markets, how the stock brokers or other investors borrow money to buy shares. The committee has to find ways and other modes of financing to improve the liquidity at the equity market.
Another proposal sent to the committee is to change the name of COT financing to other mode of innovative products but to have similar features, workable and viable for all stakeholders working at the capital market.
They have to address the issue of 'lender of last resort'. The committee might look for ways to see who could be the lender of the last resort for the stock market--as the central bank is for the banks. The committee has to table recommendations after looking around the world to see which institution plays the role of the lender of the last resort for stock markets.
Traditionally, banks have bailed out Pakistan's stock market in times of crises by pouring in billions of rupees, but this time around it is not only the liquidity crunch that has been at the heart of the problem, but the market is also suffering more, perhaps due to what the Tarin committee calls 'conflict of interests'.
The committee has to give more details on clash of interests between various brokers and office-bearers of KSE, which had been taking its toll of smooth functioning of the market.
Sources said the findings and suggestions of this working group would be crucial in ascertaining the reasons for the stock market crisis and tackling it in a professional manner on the short- to long-term basis.
It has to elaborate the financing needs of Rs 100 billion in the equity on day to day basis, or the free float system. It has been proposed that the new system would be called 'margin trading system'.
Some dealers have proposed that COT regime should be different from T+3 market as brokers' assets, other than margins, would be available first for settlement of T+3 system--Pre-trade margin (one-third of the normal margin), balance two-thirds within one hour.