950819

Shamim assures removal of anomalies

Protection against

inflation necessary to

attract investors

NASIRA ZUBERI

ISLAMABAD: The Corporate Law Authority (CLA) is fully committed to fulfil its responsibility regarding development of an independent and transparent legal system for bond market.

These views were expressed by the Chairman of Corporate Law Authority, Shamim Ahmed Khan while concluding the second session of seminar on "Prospects of Bond Market in Pakistan" held here on Saturday evening. The seminar was jointly sponsored by the CLA and the World Bank and organised by the Islamabad Stock Exchange (ISE).

Shamim Ahmed said that the authority would work on removing the areas of concerns pointed out by the speakers like provident fund issue as well as improving the system of trading of certificates in near future.

Earlier, Tariq Iqbal Khan, president of Islamabad Stock Exchange (ISE) while presenting his paper on "potential for fixed income securities market in Pakistan said that an institutionalised fiscal framework is essential for the development of fixed income securities.

He said that the government has taken the right steps in the right direction while permitting corporate entities to issue TFCs and levying of the same rate of stamp duty as on the equity shares.

While commenting upon the framework of regulation in this regard, he said that the legal network revolves around section 120 of the Companies Ordinance, 1984 which deals with Participation Term Certificates (PTCs) and term capital.

He warned that unless given appropriate protection against the inflation factor, coupled with incidence of tax, the investor is likely to remain reluctant to supply funds to the bond market. Especially, in the context of Pakistan where we have a double digit inflation rate, this inflation premium on the borrowed capital gains more importance and a mechanism may be evolved to address this tricky issue. In realistic terms, the loss of purchasing power of the security-holder needs to be compensated and there must be a reasonable rate of return, he proposed.

Nasir Ali Shah Bukhari, chief executive of Khadim Ali Shah Bukhari & Co., presented his paper on 'Role of Secondary Market, Trading & Settlement in the Development of Fixed Income Securities Model'.

He said that a master Repo agreement is required to solve the issues related with bond market.

While comprising the advantages of secondary market, he said that it has nature of the same day settlement, errate fluctuation in overnight rates as well as the cumbersome settlement.

In order to help develop the secondary market he proposed to have a consistent interest rate policy, increased SBP autonomy for monetary management, removal of cap on FIBs, removal of credit ceiling and master repo agreement.

Javed Masud, Managing Director of the PACRA and Ali Raza, country manager, Bank of America also spoke on the occasion.