Integrating the stock exchanges

Published: August 29, 2015
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It makes sense to form one stock exchange catering to the needs of investors who have already seen the KSE-100 Index jump more than 100 per cent in less than three years.

It makes sense to form one stock exchange catering to the needs of investors who have already seen the KSE-100 Index jump more than 100 per cent in less than three years.

A memorandum of understanding was signed on August 27 for the establishment of the ‘Pakistan Stock Exchange’, a move to integrate the country’s three stock exchanges. The move will see brokers and investors coming together on one platform and is aimed at increasing transparency and efficiency of the trading process, which at times has left a lot to be desired. However, the real aim of the integration process is to complete the de-mutualisation process meant to attract strategic investors who would bring in fresh investment as well as the latest technology and products.

The concept of the integrated unit makes sense since the Lahore and Islamabad stock exchanges see a combined trading activity running into millions on an average day. The value of shares traded on the Karachi Stock Exchange (KSE), on the other hand, run into billions of rupees even on a bad day. Hence, it makes sense to form one stock exchange catering to the needs of investors who have already seen the KSE-100 Index jump more than 100 per cent in less than three years. With the integration, additional capital is likely to be attracted with participants from other cities likely to take part in the trading process.

Additionally, the process of de-mutualisation would see the consolidated stock exchange offer 40 per cent to a ‘strategic investor’ — a foreign stock exchange or depository company — with 40 per cent remaining with the original members. The remaining 20 per cent would be sold to the general public under the scheme. These modalities will take some time to be finalised, but will likely make the trading process at the combined stock exchange more efficient and will see the injection of fresh capital. This move is also likely to wipe out small agents who are, as history suggests, more likely to run away with clients’ money and are at times unable to keep assets segregated as required. However, this move could amount to nothing if Pakistan is unable to keep its economic performance up to the mark and its security situation remains in a limbo. Investors would be following developments on these fronts keenly. As are we.

Published in The Express Tribune, August 29th,  2015.

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