SECP taking steps to ‘Control Bubble in Bourse’

Securities and Exchange Commission of Pakistan (SECP) Chairman Zafar Hijazi Wednesday informed the Senate Standing Committee on Finance that the commission is taking every measure to control bubble in the stock market which indicates abnormal increase in market index through illegal or in-house financing (Badla). Briefing the Senate Standing Committee headed by Senator Saleem Mandviwalla, the chairman SECP said, “We are committed to making the stock market transparent and the best, irrespective of increases or decreases in the index. We do not interfere into the role of Pakistan Stock Exchange (PSX) in market operations, but the regulator would check any mistake or irregularity in the stock market as per SECP rules and regulations.”

He said the SECP as a regulator acted and served show cause notices to 24 brokers and more are being reviewed to know the exact quantum of illegal financing taking place in the stock market. “No one will be allowed to influence the SECP,” he said, adding that in the past the big brokers had relationships in the Finance Ministry to influence the regulator. This window (Finance Ministry) has been closed for the brokers for the last two year, he also claimed. He said that the SECP would now be able to control the stock market.

He disclosed that 24 big brokers have confessed of their mistake during the SECP’s proceedings and requested that they should be issued reprimand and allowed to go without taking any putative action against them. Briefing the committee, Chairman Zafar Hijazi categorically denied of making any phone calls to stock brokers for instructing them to offload their shares.

He said that a bubble was in the making with some abnormal increase in market index and on investigation the regulator discovered some illegal or in-house financing (Badla). “If this bubble was taken place, Pakistan stock market would have gone 10 years back. A group of brokers have tried to crash the market during the last 15 days, but they have failed because of the SECP reforms,” he added.

The meeting presided over by Senator Mandviwalla was informed by the chairman SECP that there was an abnormal movement in stock market, noted in the month of November 2016 after an increase of 3,000 in the index in 10 days. The activity was repeated again after a span of a few days and when the SECP investigated the matter, an illegal financing activity or insider trading was discovered. He said the brokers were using client assets, adding the SECP is keeping a vigilant eye on them. The chairman requested the committee not to lend any support to those brokers who have not only registered a complaint in the committee but also filed a petition against the commissioners.

He said that the anti-money laundering (AML) assessment would be done in 2018, adding, “To comply with the international rules, we have to stop black money and illegal financing.” A commissioner of the SECP said that there is a system in place for risk management. He said that six companies were registered during the current fiscal year and the government would be requested to announce some incentives in the next fiscal year budget for the listing of the companies in stock market.

The meeting was also informed that some 21,000 accounts of mutual funds have been opened during the last four months and a committee has also been established to ensure quality listing of the companies. The committee chairman said the SECP should not try to control the stock market and let the stock exchange board decide about the brokers. “The SECP is acting to control the stock market just like State Bank of Pakistan has been controlling the dollar,” he added.

Chairman Federal Board of Revenue Dr Arshad Ahmed said that the FBR has been collecting standard tax rate of 17 per cent on domestic consumption of electricity. “We are collecting 17 per cent tax from the consumers,” he said, adding that there are some surcharges on the bills which have nothing to do with the FBR. Some committee members suggested that 17 per cent sale tax should not be imposed below a certain limit especially it should not be collected from lifeline consumers.

The committee directed the chairman FBR to submit a written reply to the committee in response to a resolution moved in the Senate for review of indirect taxes on electricity bill. The committee deferred ‘The Cost and Management Accountant Amendment Bill, 2017’ and expressed annoyance on the FBR for not implementing its recommendations with respect to repatriation of its tax official from Azad Kashmir. The committee also directed Senator Mian Attique to sit with the FBR officials and submit recommendations to stop the import of auto parts in form of scrap from Japan.