What’s keeping PSX investors away? – Newspaper

Last week, the Pakistan Securities and Exchange Commission (SECP) swelled the chest and declared that it registered 1,187 new companies in August, bringing the total number of registered companies to 104,030.

Compare that to an abysmally small number of companies, 558 to be precise, that have offered shares to the public to negotiate. In a country of 207 million people, the number of stock investors is approximately 236,000, including high-income individuals. Of course, that is pathetic.

Compare with that the number of capital investors in neighboring Iran or China that have 40 million and more than 100 million people investing in stocks. In Turkey, each person who opens a bank account is automatically linked to the stock market.

There is a perception that stockbrokers continue to rule the chicken coop

Contrary to what managers and frontline regulators claim over the years, no serious effort seems to have been made to attract greater public participation in the stock trade. The stock market must have spent extensively on campaigns often initiated under its "national investor education program."

The stock market has frequently held A Investor Awareness Seminars ’in large cities, such as Karachi, Lahore, Hyderabad and Faisalabad, as well as in rural areas and small cities such as Badin and Mithi. In addition to the two main regulators, the Central Depository Company of Pakistan (CDC), the National Clearing Company of Pakistan (NCCPL) and Pakistan Mercantile Exchange (PMEX), the major brokerage firms and asset management companies (AMC) also They have been supporting and sponsoring a similar awareness campaigns. But despite all that blood, sweat and tears, why has the number of stock investors not increased?

SECP President Aamir Khan says that institutional investors, mainly mutual funds, have received various incentives. The problems that impede its growth have been addressed, he said, adding that professional portfolio managers can attract new investors to capital investment.

He stressed the need to increase reach through appropriate education and distribution channels. Khan believes that the old customer sales model should be replaced by technology to attract the young generation of investors that makes up the majority of the population.

But on the trading floor, the perception of an ordinary investor that the brokers are still ruling the chicken coop persists even after the separation between ownership and administration of the stock exchange after its demutualization and the induction of a Chinese consortium which owns 40 percent of Pakistan's shares. Exchange (PSX).

It created a bit of commotion when the PSX executive president, nominated by China, made accusations against the "inherited corridors." Before flying back to Canada, Richard Morin, expelled, said in a newspaper article that inherited brokers had maintained absolute dominance in the market, had a powerful ally in the SECP and effectively controlled the PSX board. He also referred to "a single broker who now makes decisions from his living room." That was a while ago, and the main jobs in the SECP and PSX have undergone a change.

Many smaller players in the market complain that a handful of large brokers who handle almost 90 percent of the daily trade are not inclined to expand the investor base. At first glance, this statement does not seem to make sense because any increase in the number of investors would invariably improve the volumes and income of brokers.

The president of the SECP Policy Board, Khalid Mirza, said Dawn that the market could not develop without competition. "As long as there is only one stock exchange in Pakistan, there will be no development in the capital market," he said, adding that most countries developed several markets to prevent the exploitation of investors.

He referred to Dalal Street, where the performance of the Bombay Stock Exchange improved greatly after facing competition from the National Stock Exchange. Mirza said things were going backwards in Pakistan. He claimed that the old Karachi Stock Exchange had deliberately obtained the other two bags in Lahore and Islamabad without a license to create a monopoly. "Some brokers make money, both when the market is going down and up," he said.

He claimed that the political board had dismantled the old useless structure and that the rules were simplified and became less burdensome. Second, he said the cost of doing business was being reduced. To encourage the growth of the mutual fund industry, which has the propensity to attract investors, the board suggested a series of incentives and the removal of obstacles.

A former PSX director admitted that the mutual fund industry with its dazzling growth in the last 15 years had come to dictate the direction of the market while diluting the influence of foreign investors.

But it would be unfair to say that the entire fraternity of brokers is accumulating wealth. A veteran said that almost half of the 400 stockbrokers who operated at the time of the demutualization of the stock market had now delivered their Commercial Law Certificates (TREC). They closed their businesses as their income declined continuously during the three-year stock market collapse.

Much that must be done to build trust among investors goes beyond the presentation of returns over the 15-year period. Investors must be protected from any irregularity by market participants. They deserve a voice in the annual general meetings, a position on the PSX board and the reduction of transaction fees and taxes.

Under a legal requirement, investors should receive a cautionary note from brokers and mutual funds when they see problems ahead. Investors should also have an easier and more well-regulated means of leveraging financing and greater flotation from new problems, including the privatization of state-owned companies through the market.

Published in Dawn, The Business and Finance Weekly, September 16, 2019