The announcement was made in order to curb speculation and minimise risk 'if not totally removed'.
According to the press release issued late in the evening on Sunday, the SECP said that after a detailed study of the funding available to the securities market and determining the need of the market place and the risks inherent in it, the Securities and Exchange Commission of Pakistan (SECP) has decided that 'Continuous Finance System' (CFS), currently in place, will continue. CFS will be reviewed by May 31, 2006 and in the meantime the existing CFS regulations will be enforced in letter and spirit.
It said discussions would be held with Karachi Stock Exchange (KSE) management with a view to determining the phase-in of the outstanding regulations so that CFS risks are minimised at the earliest. Cap on CFS transactions of Rs 25.0 billion for KSE and Rs 2.31 billion for LSE will continue till further notification.
SECP will continue with the reform process initiated by the Government of Pakistan to ensure rapid development of the financial and capital markets of the country as per international best practices. All decisions will be taken after due diligence and examination of the facts to make sure that systemic risks are minimised and the system is protected from undue shocks. It is in this light that the CFS decision is being conveyed three weeks before the deadline so that hyper-speculation and uncertainty is minimised, if not totally removed.
SECP will continue to engage all stakeholders within its purview to find win-win solutions on all issues, the press release said.
According to an analyst, there was also already hype in the local bourses that the regulator would raise the limit to Rs 40 billion, or might remove the ceiling. This created a buying frenzy at the stock market and, during the second session of the market on Friday, the index registered tremendous increase, scoring 260 points, or 2.5 percent, on the speculation that the decision was expected on the weekend. However, the announcement made on Sunday that it would be reviewed by May 31, 2006, the index is likely to receive heavy battering and might open 100 or 150 points down on Monday. But a few optimists were of the opinion that several institutions and leading brokerage houses have bought shares on higher levels on expectation of good corporate earnings and would not allow the market to see larger declines. Rather the correction would be an opportunity for those who missed the band wagon, and they would buy shares to help recovering the market steadily.
Pakistan State Oil, Kot Addu Power and Union Bank are bound to announce their financial results and might encourage fresh buying at the local market.