The Competition Commission of Pakistan (CCP) has directed Karachi Stock Exchange (KSE) to establish a Singular Unified Trading Platform for the central execution of the trading orders of all the stock exchanges within six months period.
According to an announcement of the Islamabad Stock Exchange (ISE) issued here on Sunday, the CCP has issued a historic judgement which may end the current fragmented market system in the country.
The CCP has further asked KSE to agree to "reasonable" commercial terms with both Islamabad Stock Exchange (ISE) and Lahore Stock Exchange (LSE) within a period of two months for the eventual unification of the order books of the three exchanges. The CCP has further directed KSE to provide excess to its order book to the orders, originating from brokers of the both Islamabad and Lahore stock exchanges so as to provide the opportunity of getting the best price executions for the investors of these smaller exchanges.
The CCP has further observed that unified trading system has numerous benefits to the investors in terms of greater liquidity, better price discovery, security and greater transparency in terms of entire transaction being documented and traceable. In its judgement, released after the completion of the hearings conducted on the complaint of ISE against KSE for the abuse of its dominant position and refusing the deal, the CCP has further directed that in case reasonable commercial terms are not agreed between the parties, then any or all parties can make a reference to the Commission, which will then proceed to appoint a firm of chartered accountants to make such determination. The Commission has further directed that under all circumstances, it shall be the responsibility of KSE to ensure compliance within the time period as stipulated in the order of the Commission.
In case of non-compliance, KSE shall be liable to pay a penalty of Rs50 million at the end of the six months period, and an additional penalty of Rs250,000 per day of the continuation of the non-compliance by the premier exchange of the country.
It may be mentioned that ISE had lodged a complaint before the CCP in November 2007, accusing KSE for violation of section 3 of the Competition Ordinance, 2007 for its abuse of dominant position by refusing to share its trading platform. The Commission, while proceeding on the complaint of the ISE investigated the matter and concluded that there was sufficient weight and merit in the complaint of ISE and that the behaviour of the KSE appeared to be in contravention of section 3 of the Competition Ordinance and further proceedings u/s 30 of the Ordinance were thought necessary.
The Commission accordingly issued a show cause notice to KSE on April 10, 2008 which was challenged before the High Court of Sindh and KSE obtained a stay order on May 3, 2008 thereby restraining the CCP from taking any action on the show cause notice against KSE. The ISE challenged the stay order passed by the High Court of Sindh before the Supreme Court of Pakistan on May 3, 2008. The Supreme Court directed the Sindh High Court to dispose off the case expeditiously.
The Sindh High Court accordingly decided the matter by directing KSE to appear before the Commission and allowed the Commission to pass the final order but not to recover the penalty, if imposed on KSE. The main contention of ISE and LSE was that the best price of the commonly listed securities was mostly available at KSE and therefore, the investors at other two exchanges were deprived of having opportunity to best price available at KSE.
The complaint inter alia stated that since the bulk of trading volume takes place at KSE, the financial institutions in search of good prices also place their orders at KSE, hence producing more liquidity that results in application of dissimilar conditions to equivalent transactions thereby placing the investors on other exchanges at a disadvantage. It was emphasised in the complaint of ISE that the abuse of the dominance by the KSE was occasioned due to absence of a system of centralised market enabling access of all market centres to a national pool of liquidity for the best execution of investors' orders as if the investors would gain access to best price, it would serve in the larger public interest in terms of growth of the security market and enhancement of competition among sellers and purchasers.
The Commission accordingly after granting hearings and receiving written comments from the parties finally announced its decision on May 29, 2009. It may also be noted that the stock markets in USA are already operating on national market system, which is akin to the system as directed to be implemented by the CCP in Pakistan. Besides this, the European Union has also very recently introduced special regulations called MiFiD, so as to provide the benefits of best execution to the investors of the EU exchanges, the ISE added.
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