Instead of separate exchange, establishment of joint platform for SMEs by all 3 exchanges may be a plausible solution.
LAHORE: Creating an exchange for small and medium enterprises (SMEs) as suggested by the writer may be a good concept on paper; however, it overlooks the essential business drivers for an exchange — the listing fee and the trading revenue.
In case of SMEs, both of the above sources may not justify the return on investment needed to successfully operate an exchange on a long-term basis. In Pakistan, we have already tried the idea with a separate exchange for commodity futures — the PMEX. This exchange was licensed in 2002 and has only recently started making an operating profit. Even after 11 years of existence, it suffers from an acute shortage of finance and has substantial accumulated losses to deal with. In case of an SME exchange with a low listing income and relatively lower liquidity due to restricted trading, the return on investment may become more elusive. Instead of a separate exchange, the establishment of a joint platform for SMEs by all three exchanges may be the most plausible solution if these exchanges intend to stay relevant to their primary function of providing an avenue of alternative financing option to our entrepreneurs.
Aftab Ahmad
Published in The Express Tribune, July 18th, 2013.
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