Encouraging stock participation: Creating a market to capture a billion shareholders

Discipline mutual funds, break time barriers and conform to international norms .

KARACHI:

Karachi Stock Exchange Managing Director Nadeem Naqvi has raised some issues that need to be addressed. He wants to create a share market that will eventually capture a billion shareholders, so he must emphasise that he wants a huge market unparalleled in its growth potential.

There are four areas that need emphasis and all four are within the MD’s jurisdiction and reach.

First, discipline the mutual funds. They operate only to further their own interest regardless of the damage they are causing to the market. The Mutual Funds Association of Pakistan (Mufap) is the source of market’s problems and does not mitigate its woes.

Why will Mufap not agree to the split of ordinary shares? What is the problem in splitting? What is their objection? Every time this proposal is forwarded, their plea is that it does not matter. Why can’t the ordinary shareholder buy one share, and that is the end of the matter.

Actually, the ordinary shareholder is scared, very scared of the solution. He wants to buy equity at a price that treats all shareholders equally. Unless this fear is removed, nothing worthwhile can be achieved.

The message has been conveyed to the ordinary shareholder by the big boys and their participation. It is argued that the big boys are the backbone of market development.

Is not the behaviour of the big boys akin to insider trading? A single market participant knows everything and can determine the price, is this not insider trading? The privileged argue they are facilitating price discovery and promoting an efficient market. Can this be true? Look at the performance of the entire board. Are they not privileged insiders? How would you define insider trading if not in these terms?

Now for years, we will be subjected to this insider trading. Is this fair? Will it create the market of the size that is dreamt of?

Someday our children’s children will inherit the world. In the words of Martin Luther King, who said, “I have a dream that one day this nation will rise up and live out the true meaning of its creed...”

Second, ensure a market that knows no time barriers. It operates round the clock and facilitates price discovery internationally.

Third, ensure a market that facilitates adherence to international norms. Without this, the country will be the outcast of the international market.

Fourth, treat each individual shareholder equally. The market functions because of him. It is a fallacy to think that market can operate on government support and without the shareholder’s willing participation. The market exists because of him not in spite of him.

In the light of this, let’s examine the KSE budget proposals for 2015-16 and discover how inequitable they are and what damage they are likely to cause to small shareholder’s interest. It does not behoove the majority to legislate a framework for the minority. From where does the majority derive this mandate?

Indeed, it will pay to revisit British-Irish author Oliver Goldsmith, who said in his epic articulation:

Ill fares the land, to hast’ning
ill a prey,

Where wealth accumulates and men decay,

Princes and Lords may flourish, or may fade.

A breath can make them, as a breath has made,

But a bold peasantry, their country’s pride,

When once destroyed can never be supplied.

Do not hesitate! Create the market of your dreams. The framework is available and it has already been identified what the Securities and Exchange Commission of Pakistan (SECP) needs to do.

There is a tide in the affairs of men, which, taken at the flood, leads on to fortune; omitted, all the voyage of their life is bound in shallows and in miseries. On such a full sea, are we now afloat. We must take the current when it serves, or lose our ventures.

Life only presents us with so many outgoing tides of opportunity; in some context, only one. The key is to pay attention to the tides and currents presented to you and then jump in before they head out. Or you can be bound in shallows and miseries for years to come. It’s your choice.

The writer is the chairman of Ace Securities

 

Published in The Express Tribune, April 13^th,  2015.

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