De­mu­tu­al­i­sa­tion of bourses

The Pak Banker - - 4EDITORIAL - Di­lawar Hus­sain

HAV­ING been in busi­ness for decades, stock­bro­kers know that when a fi­nance min­is­ter meets the chief reg­u­la­tor to dis­cuss things about the bourses, it sel­dom is to con­vey any good news. So when Fi­nance Min­is­ter Ishaq Dar sat across the ta­ble with the the Se­cu­ri­ties and Ex­change Com­mis­sion of Pak­istan (SECP) on Au­gust 16, the dis­cus­sion cen­tred on the com­ple­tion of the de­mu­tu­al­i­sa­tion process of the stock ex­changes, in ad­di­tion to the re­port of the 2008 mar­ket crash. Re­ports in­di­cated that Dar di­rected the SECP to com­plete the de­mu­tu­al­i­sa­tion process 'with­out any fur­ther de­lay' in con­sul­ta­tions with the stake­hold­ers if the ex­changes were un­able to abide by the timeline. SECP Chair­man Za­far Hi­jazi briefed the fi­nance min­is­ter on the progress on de­mu­tu­al­i­sa­tion.

The ma­jor is­sue that re­mains to be re­solved un­der the Stock Ex­change (Cor­po­rati­sa­tion, De­mu­tu­al­i­sa­tion and In­te­gra­tion) Act 2012 is to hunt down strate­gic buy­ers for 40pc shares of the de­mu­tu­alised ex­changes, and to float the re­main­ing 20pc shares for sub­scrip­tion by public and fi­nan­cial in­sti­tu­tions. The bro­kers have al­ready taken their cut of 40pc.

There are in­di­ca­tions that if the stock ex­changes are un­able to get buy­ers by to­mor­row, the ini­tia­tive will pass on to the apex reg­u­la­tor. Orig­i­nally, the stock ex­changes had to find a strate­gic buyer within 119 days. That pe­riod ex­pired in Au­gust 2014. The chief reg­u­la­tor ex­tended the date till this Au­gust to en­able the ex­changes to strike a favourable deal with the prospec­tive buyer.

Un­der the Act, the process of de­mu­tu­al­i­sa­tion, which in­cludes the search and sale of the ex­changes to strate­gic buy­ers, is to be com­pleted by Au­gust 25 (to­mor­row). There are in­di­ca­tions that if the ex­changes are un­able to get the buy­ers by to­mor­row, the ini­tia­tive will pass on to the apex reg­u­la­tor. This will be un­for­tu­nate for the bro­ker fra­ter­nity, which will be more com­fort­able with a strate­gic buyer of their own choice.

A per­son in the knowl­edge of things said the stock ex­changes have found a way to stave off the chief reg­u­la­tor.

"The Act states that up to 40pc shares are to be di­vested to the strate­gic buyer," he said, adding that a po­ten­tial buyer could be sold just a 5pc stake, for in­stance, and that would also ful­fil the con­di­tion of the Act.

This Fe­bru­ary, talks were known to have gone be­yond the ex­pres­sion of in­ter­est with three par­ties: Bursa Malaysia, the Tokyo Stock Ex­change and the Qatar Ex­change. How­ever, it seems that those three qui­etly slipped out for rea­sons that have never been made public.

The latest in­ter­ested party is reck­oned to the Borsa Is­tan­bul, the sole ex­change en­tity in Tur­key. A short while ago, the rep­re­sen­ta­tives of the Turk­ish bourse had come call­ing at the stock ex­changes. Few peo­ple know what ac­tu­ally tran­spired and if the talks with the del­e­ga­tion con­cluded on any­thing close to a firm com­mit­ment.

And then there is the lin­ger­ing is­sue of the in­te­gra­tion of the coun­try's three stock ex­changes. In their meet­ing on Au­gust 15, the SECP chair­man briefed Dar on the in­ter­na­tional trend in the in­te­gra­tion of stock ex­changes and how it helps re­duce frag­men­ta­tion.

"The fi­nance min­is­ter was told that through in­te­gra­tion, the mar­kets ben­e­fit from op­er­a­tional syn­er­gies, cost-cut­ting, economies of scale, and stream­lined reg­u­la­tion," a SECP of­fi­cial said. Fol­low­ing that meet­ing, the in­te­gra­tion of stock ex­changes has emerged as a pri­or­ity.

Sev­eral meet­ings have been held be­tween the de­mu­tu­al­i­sa­tion com­mit­tees of the three stock ex­changes. An in­sider af­firmed that the is­sue might be re­solved at a meet­ing of the rep­re­sen­ta­tives of the Karachi, La­hore and Is­lam­abad stock ex­changes with the apex reg­u­la­tor, slated to be held this af­ter­noon.

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