Brokers washing dirty linen in public

 

KARACHI: After passing through a big test Pakistan bourse and regulator came under criticism for their alleged “failing” in handling the business and the criticism was based on extending clearing date from June 1 to June 5.

The allegations levelled include intentionally helping some brokerage houses amid a delay in settlement. But the National Clearing Company -NCCPL denies such allegations saying it was done to facilitate smooth completion of trade volumes that were huge and the custodian banks were unable to affirm orders for execution.

Except a few unnamed brokers and individuals all seem satisfied over the transition from MSCI Frontier Market to MSCI Emerging Market.

Market players say the three custodian banks (all foreign Banks) Citi Bank, Standard Chartered Bank and Deutsche Bank could not affirm orders for settlement thus the time was extended. Pakistan Stock Exchange-PSX was under pressure since the start of the week and ended with almost 10 percent lower on WOW.

It has been noticed that those brokerage houses or individual brokers who did not have foreign clients with big exposure or individual fortune makers who failed to benefit due to sluggish market trend ahead of transition were criticising.

Nadeem Naqvi, Managing Director PSX earlier talking to the Geo News said all regulators were geared up to handle the additional volumes and facilitate transactions on June 1. “No foreign investor has complained about the handling of business while transition took place, said Muzzamil Islam CEO EFG Hermes in Pakistan.

The criticism ignited following three custodian banks taking time to affirm transaction though they also worked overtime with additional staff deployed to handle the volumes. According to reports, the three banks were still busy (though Saturday and Sunday off) in completing the job to ensure that on June 5 all transactions settlement could be completed.

 

Atif Zafar, Head of Research JS Global, said June 1 was a challenging day constrained by Ramazan Timings and high volumes and Pakistan successfully passed through this test.

“Without regulators, this (transition) wouldn't have been possible,” Islam said adding that at least 12-15 joint sessions were conducted by PSX, with NCCPL, SECP, Brokers, Custodians to make this event smooth. He also appreciated regulators for their efforts and accommodating stakeholders’ suggestions in making the transition smooth.

Muhammad Lukman, CEO NCCPL brushing aside criticism said the step taken by NCCPL was aimed at ensuring seamless settlement of transactions. “It was never aimed at facilitating the broker clearing members. It enabled the Custodian banks to settle the transaction of foreign portfolio investors that are their clients,” he said.

He said the event was triggered by delays in completing the affirmation process by Custodian banks on account of significant increase in trading volume. “The value of un-affirmed transactions as on June 1, 2017 was PKR 53.9 billion,” he added.

Muzzamil Islam said the news is biased and not close to reality. “The controversy triggered in reaction to steep market decline and has nothing to do with rebalancing. Sadly it was just blame game and trying to politicise the business,” he added.

His feedback from the custodian banks, Lukman of NCCPL said: “I have been personally contacted by the country heads of all three Custodian banks to place on record their appreciation for the timely measures and steps taken by NCCPL to facilitate them during the event”. They (custodian banks) have also conveyed that their global clients are large institutional investors who have also recognised the efforts put in by the capital market institutions in Pakistan to make this event successful.

“All participants must segregate the transactions and market volatility. Since market saw a one-way traffic so people are mixing both,” Muzzamil Islam said.

Market watchers and followers believe that making transition controversial would reflect negatively on Pakistan and create doubt in the minds of investors. Some cited local business rivalries, vested interests and failure of some brokers/investors in making windfall profits (as they expected) on this transition as the main reason for criticising and levelling allegations.

Citing macroeconomic indicators and market performance and fundamentals, analysts believe that Emerging Market funds would start pouring in Pakistan market gradually. Though at the moment the outflow of foreign investment was dominating inflows. Some, however, also say that impression of instability (political) in the backdrop of Panama investigation has also impacted the market.