Brokers ready to implement CLN on time: SECP urged to clear pending issues first

The Karachi Stock Exchange members, while expressing apprehension, have urged the Securities and Exchange Commission of Pakistan (SECP) to remove anomalies and clear the pending issues prior to implementation of Client Level Netting (CLN) system.
"We are ready to implement the CLN on its due date ie March 5, 2007. However, the implementation of it without addressing the issues could create negative impact for the stock market", a member said after an informal meeting of the members held here on Wednesday.
On a joint representation received from 71 members of the Karachi Stock Exchange, expressing concerns over the introduction of 'client level netting', without addressing various pending matters, the management of the Exchange arranged the meeting to address these concerns.
To address the relevant matters for early resolution with the SECP, the members present constituted a committee comprising some Board members and some senior members of the Exchange. The committee was requested to seek an appointment with SECP Chairman to address these concerns and their resolution before implementation of the CLN system.
The committee comprises Shehzad Chamdia, Muhammad Shoaib Memon, Dawood Jan Muhammad, Sikandar Esmail Bagasrawala, Amin Issa Tai, Muhammad Yasin Lakhani, Firozuddin A. Cassim and Aqeel Karim Dhedhi.
DURING THE MEETING, A NUMBER OF ISSUES WERE RAISED BY THE MEMBERS WHICH, INTER-ALIA, INCLUDED:
1. Trading data asked by the SECP relevant to clients for the period January 1, 2006 to June 30, 2006 as per SECP directive.
2. Introduction of the 'client level netting' without addressing the following matters.
a) Introduction of margins payable by financial institutions directly to the exchange.
b) Across the settlement netting to the extent of square-off positions of client in ready market.
c) Disbursement of the profits collected against marked to market losses immediately.
d) Review of capital adequacy regime in the light of netting system.
e) Exemption of margin against deliveries of outstanding sales position.
The members present in the meeting expressed their views on each and every aspect of the 'client level netting' in context of the matters referred to above. They were ready to implement 'client level netting', subject to removal of anomalies, especially arranging exposures by financial institutions directly to KSE, which comes solely in the domain of SECP.
The members also expressed serious concern over the latest information asked by the SECP in relation to client level transactions for the period January 1, 2006 to June 30, 2006. It was stated that since the UIN system was introduced from August 2006, there was no reason to ask information which was neither readily available nor can be arranged after a lapse of one year.
The members also observed that the detailed daily data on trading is being forwarded by Exchange to SECP for over last five years. Accordingly, the SECP must have the relevant information in its office and as such the reason to call for such information once again was not clear.
The members observed that the information asked by the SECP was not relevant to any specific case nor was there any reason for asking such information in relation to all clients which may compromise the confidentiality of clients.
It was further observed that such acts and attitude on the part of the Regulator was creating confusion and seriously affecting the investors' confidence, especially in a situation when the government at the highest level is making concerted efforts to invite and attract foreign investments into the country.
It was observed that frequent changes in the reforms in hand and introduction of new reforms by SECP ongoing basis with an obsession on timelines have possible adverse impact on market prices. These portray a bad impression of capital market in particular and the country in general.
The members also stressed that it was of critical importance for the growth of the capital market for SECP to give a long-term roadmap for reforms, which should be achievable and realistic.
The members also expressed concern over the SECP's attitude in the matter of procedure of entitlement of bonus/right share in the CFS market which was a normal practice followed by the Exchange for the last many decades, without recourse to any alternative system. As a result of its refusal to accept the recommendation of the Exchange as communicated by the reply vide letter dated January 15, 2007 which was circulated among the members the market sentiment was badly affected due to this decision.
It was also observed that while the KSE management and members were fully prepared and ready for implementation of 'client level netting' on scheduled time ie March 5, 2007, they observed that the relevant issues as highlighted above as well as already taken up by the Management of the Exchange on February 23, 2007 needed to be addressed and resolved immediately to pre-empt any major upheaval in the market. The members observed that in such an eventuality the responsibility would solely be of the SECP.