Identifier
Created
Classification
Origin
08ISLAMABAD2314
2008-07-07 13:01:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Islamabad
Cable title:
Stabilization Measures for Pakistan's Falling Stock Market
how-toVZCZCXRO0946 RR RUEHLH RUEHPW DE RUEHIL #2314/01 1891301 ZNR UUUUU ZZH R 071301Z JUL 08 FM AMEMBASSY ISLAMABAD TO RUEHC/SECSTATE WASHDC 7646 INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC RUEATRS/DEPT OF TREASURY WASHINGTON DC RHEBAAA/DEPT OF ENERGY WASHINGTON DC RUEHRC/USDA FAS WASHDC 4239 RUEAIIA/CIA WASHDC RUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL RHMFISS/CDR USCENTCOM MACDILL AFB FL RUEKJCS/SECDEF WASHINGTON DC RUEHBUL/AMEMBASSY KABUL 8816 RUEHDO/AMEMBASSY DOHA 1566 RUEHNE/AMEMBASSY NEW DELHI 3478 RUEHKP/AMCONSUL KARACHI 9974 RUEHLH/AMCONSUL LAHORE 5718 RUEHPW/AMCONSUL PESHAWAR 4493
UNCLAS SECTION 01 OF 02 ISLAMABAD 002314
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: EFIN ECON PREL PK
SUBJECT: Stabilization Measures for Pakistan's Falling Stock Market
Summary
- - - -
UNCLAS SECTION 01 OF 02 ISLAMABAD 002314
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: EFIN ECON PREL PK
SUBJECT: Stabilization Measures for Pakistan's Falling Stock Market
Summary
- - - -
1. (SBU) After consulting with the Karachi Stock Exchange Board
(KSE),the Securities and Exchange Commission of Pakistan (SECP)
announced measures to stabilize the stock market. These measures
include: a ban on short selling to stop speculation; use of bank
guarantees as security deposits; changes in the limits individual
stocks may gain and lose in one day; and establishment of a USD 439
million (Rs.30 billion) stock market stabilization fund. According
to the SECP, these measures are short term and will be reviewed in a
month. Adnan Afridi, KSE Managing Director, told Economic Counselor
that he was "very reluctant to tinker with the market." End
summary.
SECP and KSE agree on market stabilization measures
- - - - - - - - - - - - - - - - - - - - - - - - - -
2. (U) The Securities and Exchange Commission of Pakistan (SECP)
officials and the Board of Directors and Management of the Karachi
Stock Exchange (KSE) decided to adopt market stabilization measures
to stop the continuing drop in KSE-listed stocks and to ensure that
trading continues smoothly.
3. (SBU) Effective June 24, the maximum drop in a daily stock price
has been reduced from five to one per cent; if it loses more than
one percent, trading is suspended for that stock until the following
day. Similarly, the maximum daily increase of a stock price has been
raised from five to ten percent; if the stock rises above this
level, trading is suspended for that stock until the following day.
These measures will stay in place for 30 days, and be reviewed on
July 15.
4. (SBU) Adnan Afridi, KSE Managing Director, told Economic
Counselor that investors were having problems covering five percent
losses on an almost daily basis. Acknowledging that "he hates
tinkering with the market" and that "we waited as long as we could
to implement market controls," Afridi commented that he had spoken
to the London and New York exchanges prior to the imposition of
these measures.
5. (SBU) Selling shares without owning them (short selling) is now
completely prohibited in the deliverable future contract market.
SECP officials commented that brokers had been engaging in short
selling, further driving down the market. This measure is temporary
and will be reviewed at the end of July.
6. (SBU) Bank guarantees from top-rated banks are now allowed as
security deposits, which must be maintained by brokers and share
dealers as a financial cushion for market fluctuations. Afridi told
us that the margin calls were increasing markedly, causing liquidity
problems for share holders. As a result, bank guarantees have been
allowed as security deposits.
7. (SBU) A USD 439 million (Rs. 30 billion) market stabilization
fund will be established. Utilization of the fund will be
automatically triggered in the event of extreme market volatility.
SECP officials are considering buying those stocks whose prices are
decreasing. Details of how the fund will operate are still under
discussion, according to officials at both the SECP and KSE.
Comment
- - - -
8. (SBU) Comment: The decision to let the stock prices rise 10
percent above the previous day closing price and fall just 1 percent
below the closing price is designed to give an artificial boost to
the market. As a result, volumes have increased again. However,
these measures have not stopped the continued drop in the market,
with the exception of one or two days. Afridi was encouraged that
market volumes have increased since the June 23 implementation of
these measures. In their absence, the market would have registered
even greater losses. The ban on short selling is likely to curb
speculation. The ability to use bank guarantees for margin calls is
further evidence of the effects of Pakistan's tight monetary policy
ISLAMABAD 00002314 002 OF 002
and decreased liquidity due to a sharp drop in portfolio investment
inflows. As much of the international investment in the KSE has
pulled out -- at least for now -- it is the local investors which
need to cover their margins in a falling market. End comment.
PATTERSON
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: EFIN ECON PREL PK
SUBJECT: Stabilization Measures for Pakistan's Falling Stock Market
Summary
- - - -
1. (SBU) After consulting with the Karachi Stock Exchange Board
(KSE),the Securities and Exchange Commission of Pakistan (SECP)
announced measures to stabilize the stock market. These measures
include: a ban on short selling to stop speculation; use of bank
guarantees as security deposits; changes in the limits individual
stocks may gain and lose in one day; and establishment of a USD 439
million (Rs.30 billion) stock market stabilization fund. According
to the SECP, these measures are short term and will be reviewed in a
month. Adnan Afridi, KSE Managing Director, told Economic Counselor
that he was "very reluctant to tinker with the market." End
summary.
SECP and KSE agree on market stabilization measures
- - - - - - - - - - - - - - - - - - - - - - - - - -
2. (U) The Securities and Exchange Commission of Pakistan (SECP)
officials and the Board of Directors and Management of the Karachi
Stock Exchange (KSE) decided to adopt market stabilization measures
to stop the continuing drop in KSE-listed stocks and to ensure that
trading continues smoothly.
3. (SBU) Effective June 24, the maximum drop in a daily stock price
has been reduced from five to one per cent; if it loses more than
one percent, trading is suspended for that stock until the following
day. Similarly, the maximum daily increase of a stock price has been
raised from five to ten percent; if the stock rises above this
level, trading is suspended for that stock until the following day.
These measures will stay in place for 30 days, and be reviewed on
July 15.
4. (SBU) Adnan Afridi, KSE Managing Director, told Economic
Counselor that investors were having problems covering five percent
losses on an almost daily basis. Acknowledging that "he hates
tinkering with the market" and that "we waited as long as we could
to implement market controls," Afridi commented that he had spoken
to the London and New York exchanges prior to the imposition of
these measures.
5. (SBU) Selling shares without owning them (short selling) is now
completely prohibited in the deliverable future contract market.
SECP officials commented that brokers had been engaging in short
selling, further driving down the market. This measure is temporary
and will be reviewed at the end of July.
6. (SBU) Bank guarantees from top-rated banks are now allowed as
security deposits, which must be maintained by brokers and share
dealers as a financial cushion for market fluctuations. Afridi told
us that the margin calls were increasing markedly, causing liquidity
problems for share holders. As a result, bank guarantees have been
allowed as security deposits.
7. (SBU) A USD 439 million (Rs. 30 billion) market stabilization
fund will be established. Utilization of the fund will be
automatically triggered in the event of extreme market volatility.
SECP officials are considering buying those stocks whose prices are
decreasing. Details of how the fund will operate are still under
discussion, according to officials at both the SECP and KSE.
Comment
- - - -
8. (SBU) Comment: The decision to let the stock prices rise 10
percent above the previous day closing price and fall just 1 percent
below the closing price is designed to give an artificial boost to
the market. As a result, volumes have increased again. However,
these measures have not stopped the continued drop in the market,
with the exception of one or two days. Afridi was encouraged that
market volumes have increased since the June 23 implementation of
these measures. In their absence, the market would have registered
even greater losses. The ban on short selling is likely to curb
speculation. The ability to use bank guarantees for margin calls is
further evidence of the effects of Pakistan's tight monetary policy
ISLAMABAD 00002314 002 OF 002
and decreased liquidity due to a sharp drop in portfolio investment
inflows. As much of the international investment in the KSE has
pulled out -- at least for now -- it is the local investors which
need to cover their margins in a falling market. End comment.
PATTERSON