Identifier
Created
Classification
Origin
08ISLAMABAD3117
2008-09-24 13:09:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Islamabad
Cable title:
STATE BANK OF PAKISTAN DISCUSSES INCREASING EQUITY MARKET
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UNCLAS ISLAMABAD 003117
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN PREL PK
SUBJECT: STATE BANK OF PAKISTAN DISCUSSES INCREASING EQUITY MARKET
LIQUIDITY
UNCLAS ISLAMABAD 003117
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN PREL PK
SUBJECT: STATE BANK OF PAKISTAN DISCUSSES INCREASING EQUITY MARKET
LIQUIDITY
1. (SBU) Summary: State Bank of Pakistan (SBP) officials met with
market stakeholders on September 22 to discuss proposed fiscal and
monetary measures to provide increased liquidity to equity markets.
The Karachi Stock Exchange's KSE-100 Index has been frozen at 9,144
points, its value on August 27, to prevent further deterioration in
the index's value. The Karachi Stock Exchange Board of Directors
has banned the short selling of stocks and the blank sale of futures
contracts until at least November. Stock broker representatives
called on regulators to do more, including provide capital gains tax
exemptions for banks and extend capital gains tax exemptions for
non-bank corporate and institutional investors past 2010. End
Summary.
2. (SBU) The State Bank of Pakistan (SBP) met with Security and
Exchange Commission and Karachi Stock Exchange (KSE) officials on
September 22 to discuss proposed fiscal and monetary measures to
provide increased liquidity to equity markets. The Karachi Stock
Exchange's KSE-100 Index has been frozen at 9,144 points, its value
on August 27. The market has fallen below 9,144 points on three
occasions, triggering a halt to trading. Trading on individual
shares is also suspended if share value drops below the August 27
level. The SBP has consulted with both government officials and
private sector representatives to consider a fiscal and monetary
package to increase liquidity prior to a future removal of the
trading floor on KSE share and indexes.
3. (SBU) In an attempt to curb market speculation, the Karachi Stock
Exchange Board of Directors announced that, effective September 24,
the short selling of stocks and the blank sale of futures contracts
will be temporarily prohibited. These prohibitions will remain in
effect until November, at which point the Board of Directors will
review the policy.
4. (SBU) Stock broker representatives Arif Habib, Aquil Karim Dedhi
and Jahangir Siddiqi, also in attendance at the September 22
meeting, requested that the SBP relax banking regulations to allow
further bank investment in the market. Currently, banks can invest
20 percent of available capital in market equities and ten percent
of available capital in futures. Broker representatives reportedly
requested capital gains tax exemptions for banks, currently in place
until 2010 for non-bank investors. The representatives also
requested that the capital gains tax exemption for non-bank
corporate and institutional investors be extended past 2010 for
those companies that participate in share buyback programs. The
representatives also asked that buyback dividends be exempted from
taxation and that mutual funds, with the approval of share holders,
be allowed to invest up to 50 percent of available capital in the
KSE stabilization fund.
5. (SBU) In response to broker recommendations, SBP Governor Akhtar
reported that the SBP had already pumped Rs 200 billion (USD 2.56
billion) in additional liquidity into the market this year and will
closely monitor market needs in deciding whether to extend
additional liquidity to the markets. KSE Deputy Manager Juanid
Mirza reported to local media that while these initial
recommendations were currently under review, it was likely that the
State Bank would eventually approve many, if not all, of the
proposals. According to Mirza, declining investor confidence
coupled with capital flight would eventually force the SBP's hand,
as Pakistan's liquidity crunch looks set to worsen.
PATTERSON
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN PREL PK
SUBJECT: STATE BANK OF PAKISTAN DISCUSSES INCREASING EQUITY MARKET
LIQUIDITY
1. (SBU) Summary: State Bank of Pakistan (SBP) officials met with
market stakeholders on September 22 to discuss proposed fiscal and
monetary measures to provide increased liquidity to equity markets.
The Karachi Stock Exchange's KSE-100 Index has been frozen at 9,144
points, its value on August 27, to prevent further deterioration in
the index's value. The Karachi Stock Exchange Board of Directors
has banned the short selling of stocks and the blank sale of futures
contracts until at least November. Stock broker representatives
called on regulators to do more, including provide capital gains tax
exemptions for banks and extend capital gains tax exemptions for
non-bank corporate and institutional investors past 2010. End
Summary.
2. (SBU) The State Bank of Pakistan (SBP) met with Security and
Exchange Commission and Karachi Stock Exchange (KSE) officials on
September 22 to discuss proposed fiscal and monetary measures to
provide increased liquidity to equity markets. The Karachi Stock
Exchange's KSE-100 Index has been frozen at 9,144 points, its value
on August 27. The market has fallen below 9,144 points on three
occasions, triggering a halt to trading. Trading on individual
shares is also suspended if share value drops below the August 27
level. The SBP has consulted with both government officials and
private sector representatives to consider a fiscal and monetary
package to increase liquidity prior to a future removal of the
trading floor on KSE share and indexes.
3. (SBU) In an attempt to curb market speculation, the Karachi Stock
Exchange Board of Directors announced that, effective September 24,
the short selling of stocks and the blank sale of futures contracts
will be temporarily prohibited. These prohibitions will remain in
effect until November, at which point the Board of Directors will
review the policy.
4. (SBU) Stock broker representatives Arif Habib, Aquil Karim Dedhi
and Jahangir Siddiqi, also in attendance at the September 22
meeting, requested that the SBP relax banking regulations to allow
further bank investment in the market. Currently, banks can invest
20 percent of available capital in market equities and ten percent
of available capital in futures. Broker representatives reportedly
requested capital gains tax exemptions for banks, currently in place
until 2010 for non-bank investors. The representatives also
requested that the capital gains tax exemption for non-bank
corporate and institutional investors be extended past 2010 for
those companies that participate in share buyback programs. The
representatives also asked that buyback dividends be exempted from
taxation and that mutual funds, with the approval of share holders,
be allowed to invest up to 50 percent of available capital in the
KSE stabilization fund.
5. (SBU) In response to broker recommendations, SBP Governor Akhtar
reported that the SBP had already pumped Rs 200 billion (USD 2.56
billion) in additional liquidity into the market this year and will
closely monitor market needs in deciding whether to extend
additional liquidity to the markets. KSE Deputy Manager Juanid
Mirza reported to local media that while these initial
recommendations were currently under review, it was likely that the
State Bank would eventually approve many, if not all, of the
proposals. According to Mirza, declining investor confidence
coupled with capital flight would eventually force the SBP's hand,
as Pakistan's liquidity crunch looks set to worsen.
PATTERSON