Eye of the storm: The brokerage house that could

Topline Securities rapid success and entrenched market position.


Kazim Alam October 12, 2013
Topline Securities rapid success and entrenched market position.

KARACHI:


It is said that rumours are carried by haters, spread by fools and accepted by idiots.


In the latter half of the previous month, the stock market was abuzz with rumours that a leading brokerage house of the country was in deep trouble after some of its high net worth individuals received margin calls on their leveraged positions.

Like all rumours, however, this one also died down eventually, but not without creating some panic in the stock market. Arguably, it was one of the many reasons why the benchmark index slipped 8.3% between August 15 and September 2.

The brokerage house in question was Topline Securities, and the man in the eye of the storm was its CEO, Mohammed Sohail.

“Our revenue and market share are better than a lot of so-called high quality, big brokers of the country. Seeing an entrepreneur running a successful brokerage business after he started from scratch 20 years ago creates an obvious element of jealousy among people,” Sohail told The Express Tribune in a recent interview.

But how exactly can it be ascertained that a company is indeed a brokerage heavyweight, given that a sizeable number of firms insist on being the leading player in the market?

Globally, many stock exchanges issue official data that reflect the market share of each player regularly. But the Karachi Stock Exchange (KSE) issues no such data − not for the ready market at least – that could help analysts determine the actual size of individual brokerage houses.

Although the derivates market is larger than the cash market in many countries of the world − including India where the former is 20 times bigger than the latter – it is still underdeveloped in Pakistan, where it is one-fifth of the country’s cash market. While nobody knows the exact market share of any brokerage house in the KSE’s ready market, the exchange’s website publishes futures open interest of brokers (value-wise) in every stock on a daily basis.

In the derivates market of roughly Rs3.5 billion, the open interest of Topline Securities hovers around Rs500 million on a typical day. This means Topline Securities’ leveraged positions in futures constitute between 10% and 20% of the total market size on any given day, making it one of the country’s leading brokers.

Other dominant players include Arif Habib Limited, JS Global, KASB Securities, and a few others.

From analyst to CEO

Sohail started off as a research analyst, an entry-level position, in 1994 after graduating from the Institute of Business Administration. He was working as director of broking at JS Global in 2008 when the global recession kicked in, while a separate crisis in the domestic capital markets shut the KSE for over three months.

Sohail, the business-savvy scion of a Memon family, identified an opportunity amidst all the chaos wreaking havoc on the stock market at the peak of the financial crisis: he bought a brokerage seat on the KSE, whose cost had suddenly plummeted by more than 50% from Rs150 million to Rs70-80 million.

“I took out all my savings and got help from my family and friends to buy the company, which was in distress. We injected equity and changed its management,” he said. “Today, the result is in front of you.”

Last week, Asiamoney ranked Topline Securities as the best brokerage house in Pakistan in its latest Brokers Poll 2013. Apart from brokers’ ranking from the CFA Association’s Pakistan chapter, Asiamoney is the only globally reputed organisation that puts out such rankings regularly. (Euromoney has issued such rankings, but it has not been consistent.)

It was the first time that any Pakistani broker has been ranked number one for three years in a row by Asiamoney.

“Post-financial crisis, one of the things local and international investors look for in a brokerage house is whether or not the broker has a prop book,” Sohail said, claiming that all big names in Pakistan’s brokerage industry run prop books.

Front-running, or market abuse, becomes possible only when a broker has a prop book. Many brokers have a reputation of buying shares with company’s money and selling them on to their clients, thus becoming investors in the process.

“We have a lot of cash lying with us, but we don’t have a prop book. That has earned us investors’ trust,” Sohail said. “No wonder, one-third of our revenues comes from foreign fund managers alone.”

Published in The Express Tribune, October 13th, 2013.

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