Equity market: KSE attracts money through new investment vehicle

Convertible Rupee Accounts now allow non-resident Pakistanis and foreigners to trade in the country’s equity market.

KARACHI:

For any Pakistani who wants to invest in equities, the preferred investment avenue should ideally be their native country’s stock market. After all, with its benchmark index posting a gain of 15% in dollar terms in the last quarter of fiscal 2013, the Karachi Stock Exchange (KSE) has been one of the best performing markets of the world in recent times.

However, while foreign institutional investment in KSE has shown continuous increase of late, individual investors – particularly non-resident Pakistanis – have largely been away from the market. Experts believe this is mainly due to the rupee being not fully convertible, which deters non-resident Pakistanis and foreign nationals from investing in Pakistan.

However, with the Special Convertible Rupee Accounts (SCRA), the State Bank of Pakistan (SBP) now allows non-resident Pakistanis and foreign nationals to trade in the country’s equity market.

“We believe the best investment vehicle for non-resident Pakistanis is SCRA, which needs to be made retail-friendly. In particular, the process of opening a SCRA should be simplified and impediments should be removed,” KSE Deputy Managing Director Haroon Askari told The Express Tribune in a recent interview.



SCRA is a bank account specifically designed to facilitate foreign investment in the country’s securities market. A person residing outside Pakistan can invest in securities listed and traded in the country by opening SCRA with any authorised dealer (banks) in Pakistan. Such an account can be fed by remittances from abroad or by transfer from a foreign currency account of the non-resident.

Given their unique nature, special permission is given for funds transfer without prior approval of the State Bank of Pakistan. However, account opening requirements for SCRA are quite tedious. For example, a non-resident Pakistani is required to open a trading account with the broker, a separate SCRA account with the bank, and a custody sub-account with the bank to manage securities movement. In addition, a duly consularised copy of power of attorney on a stamp paper by the relevant consul general of Pakistan is also required for SCRA and CDS sub-account with the bank.

“We took up this issue in our recent meeting with Finance Minister Ishaq Dar. We requested him to ask the SBP and Ministry of Finance to revisit this issue and make procedural requirements easy, especially those pertaining to ‘know your customer’ (KYC),” Askari added.

Calling the consularised power of attorney from the relevant consular general of Pakistan an expensive and time-consuming hassle, Askari noted that it requires the non-resident Pakistani to visit the embassy personally to get the required documentation consularised. “In normal circumstances, it takes more than a month to complete this work,” he said, adding that embassies also charge a high fee for such notarisation.

Moreover, under the current regulations, banks have to report every single transaction related to SCRA to the central bank on a daily, weekly and monthly basis for every single account whereas the movement of funds is already recorded in their system. This is done despite the fact that trading details are also provided by the National Clearing Company Pakistan (NCCPL) to the State Bank on the UIN basis. Separately, banks are required to report to the State Bank the valuation report of custody regularly. Askari said an increase in the client base will likely lead to more documentation and manual effort, making the whole process further expensive.

About retail obstacles regarding KYC, Askari said ‘mirror accounts’ can be opened in Pakistan for non-residents by foreign and local banks having broad branch networks, as they have already performed KYC and met other documentary requirements. “This will save the customer’s and time while avoiding a long registration process.”

Citing the example of India whose capital market received a boost by funds sent in by non-resident Indians in the beginning of the 1990s, Askari said non-resident Pakistanis are the best target client base in order to increase the size of the country’s capital markets.

“The KSE management plans to encourage banks to advertise SCRA, as it is a great investment vehicle although few people know about it,” he added.

Published in The Express Tribune, August 25^th 2013.

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