Pakistanis have a very curious way of expressing themselves when things dont go their way. All it takes is for the notion of being duped or offended to sink in and a good bit of car smashing and tire burning is just a mob away. Often getting distracted with trifling matters escalated by the media, the decisions that are real threats to the public interest mostly seem to go by unnoticed until it is too late. If you have never been an irate investor lobbing rocks at the stock exchange, consider this fair warning.
Of late, our Securities & Exchange Commission (SECP) has not only given cause to comment on its errant ways but it is also determined to obliterate the last vestiges of good corporate governance that we had in the country. As the apex regulator of the corporate sector and securities market in Pakistan, the SECP has a heavy cross to bear in ensuring that responsible industry practices take root. But how good can these practices be if the principles that drive our regulatory policies are defective to begin with? The most critical of principles for regulation anywhere in the world is the independence of the regulator. Yet, the SECP and our Federal Government seem to think that engagement at arms length is best achieved by minimising the integrity and impartiality of a watchdog.
For an organisation that stands accused of serving nasty snacks at awareness raising seminars for the Code of Corporate Governance, one would expect it to at least refrain from being controversial in the decisions it makes. Proving once again that our government is willing to gamble with our economy, one is appalled to learn that such an important institution is now being headed by a former broker who enjoys the confidence of industry movers.
Today, the integrity of our market regulator stands eroded and it is more like an agency or subsidiary of a handful of very powerful brokers. So powerful, in fact, that the closure of the stock exchange in 2008, and the massive losses that occurred, came about due to the pressure these very brokers applied upon policy-makers.
Small investors still licking their wounds must now also get some salt rubbed in by a lax government that has failed to launch an investigation into the debacle and hold the responsible parties to account for their actions. Indeed, the collapse of the small investor is testament to a broker truly deserving the title of his profession, and in some cases being above the law. The same creed now seems to be in charge of our regulator and is increasingly vocal about the future of the economy.
Although much lip service is paid to reform measures that the SECP needs, no firm proposal has been put forward for enabling a robust market economy in Pakistan. What investor confidence can we expect an institution to instill where the conflict of interest of its own Chairman is a slap in the face of good governance? Ideally, such a position would be filled only by an academic, for that is someone who is detached enough from the industry to be objective, and still aware of the best regulatory practices to introduce into the sector.
Unfortunately, an appointment lacking merit and transparency has already raised alarm in the capital markets of Pakistan, and the ensuing gift to the nation is the introduction of the Margin Trading System(MTS). One is shocked that the best the SECP can do to revive our fragile economy is to rehash the old badla system and give it a new name. In doing so, perhaps the SECP has given the public a clear indication of its willingness to become an instrument of market manipulation.
The incumbent chairman may enjoy wielding power but the appointment in itself signifies a shift in policy which will transform the role of the SECP from that of big brother into that of a great-grandmother toothless and weak.
Of all the tangible steps that can be taken to diversify our markets and make them more sophisticated, the SECP has failed to introduce innovative market products and enabling a vibrant debt market in the country. Whereas governments and corporations worldwide rely on the bond market to raise capital, the SECP seems content with repackaging old wine in new bottles. One can only expect that there will be plenty of time to get inebriated when the windows the stock exchange are being smashed in and foreign investment leaves for greener pastures.
We can avert this disaster today by inculcating professionalism in our stock market and reducing the influence of big brokers. Perhaps the SECP can show us some evidence of its good intentions by demutualising our stock exchange or following the centralised model being practiced in a large neighbouring country to the East of Pakistan.
Until this happens, this little piggy is certainly not going to market. There is a six deck blackjack table somewhere which is starting to look far more attractive.
The writer is a consultant on public policy.
