It seems that in response to this post by our very own Teeth Maestro, The Karachi stock Exchange has decided to stage a comeback. Naaah…just kidding..

Well, the markets have been back to their raging mad bull runs for the past couple of days.

Today, the market closed 425.69 points in the green zone with several of the blue chips closing at their upper locks.
Strangely, trading volumes seemed not so high at the 161 million mark. The market closed at 9607.11 today.

Yesterday, the market closed at 9177.46 points, higher by 410.48 or 4.68% as compared to the last reading day on wednesday, which witnessed at massive 548 point plunge.

Apprently, there was a change in the trading rules which kicked the market out of its decline. Here are some explanations:

Lower locks are now at 5% instead of 20%: When share prices decline, they will only be allowed to decline to 5% now instead of 20% before trading in them is suspended till the price rebounds. This is done to arrest a general decline in the whole market index.

Restriction in forward selling of June’s future contracts: All selling has to be settled by a corresponing buy. Generally the buy comes before the sell because short selling (selling before buying) is not allowed in Pakistan, except for future contracts. Future contrats are commitments to buy at a certain future date and price with a corresponding future selling contract.

If a broker didnt have a share, he could sell it at a specific committed date in the future, and make up for it with a buy or a contract to buy in the same time. This meant that if the buying price went higher than the selling price he had committed, he was stuck and often had to take severe losses to make up for the contract. This crisis was essentially what triggered the March 2005 crash too. There was appraently a Rs. 60 billion void in the market back then.

Increase in exposure limits for CFS from 50% to 100% and the number of CFS scrips now at 30 from 14: Brokers now have easier access to loans for a greater number of scrips.

Thankfully, now many people will breathe a sigh of relief…

6 Comments so far

  1. Teeth Maestro (unregistered) on June 16th, 2006 @ 5:51 pm

    Hey great post – I continue to dream that my post could potentially be the contributing factor to the recovery of KSE. I know it never will be but let me dream :)

    The new rules could be good for the investors, but before I make a quick judgment, I await to see some good responses by our readers here.

  2. openeyes (unregistered) on June 16th, 2006 @ 8:28 pm

    After the Karachi Stock Exchange 100 InDEX
    raise before two days no have buyer purchase’s
    of shares all companies is lower lock after
    change of regulation all buyer’s is entered
    Seller’s out many of companies is upper Lock
    but this both situation UP/DOWN Index make money
    Big broker’s all of small investor is traped
    This situation is responsible is all Regulator
    Authority / Goverment offical. Market is down all responsible authority is wake n finding the fact of decline investigate how’s person invlove.then
    market is up all authorities / Govt. Offical is quit n say “ECONONY IS BETTER N TAKE OFF/

  3. Kashif (unregistered) on June 16th, 2006 @ 9:24 pm

    As I have commented in Dr. Sahib’s post, KSE has gone through another phase of power-play. This is getting more periodic now, raising the levels to artificial heights and then nose-diving it, and making profits in round trip. People who bought shares late wed / early thursday have earned good money in couple of days.

    KSE is a gold mine, provide you know when to enter and exit.

  4. alias (unregistered) on June 17th, 2006 @ 12:31 am

    That’s not quite right, Inspirex. We don’t have a new set of rules. We only reverted to the old ones. Here’s how it goes.

    When the price of a stock rises/falls by 5%, a lock sets in and you can’t do any more buying or selling in that stock. This is very frustrating, and was one of the key factors people lost so much money in the market in March last year. The need for such a system is based on the indisciplinary trading that punters involve themselves in, but that’s another topic. What really kept causing these locks was the mass short-selling being done. These bids were put in even before the trading session started on the days the market crashed and we all know who’s got the finances to make such calls.

    It was due to this that last December the KSE management proposed a new set of rules that if the first day the prices fall by 5%, the next day they would have a margin of falling by 10%, the next day by 20% and so on. So after hitting the 5% and 10% locks on the first and second days of the collapse, people were afraid of how bad the market could turn out if we reached the 20% limits; imagine OGDC falling from Rs. 115.50 to Rs. 92.4 by going down Rs. 23.1 i.e. 20%. It alone would have brought the market down by 250 points! Imagine if the NBP and PTCL fell by 20% on the same day as well!

    Hence the intervention and reverting back to the old rules. Needless to say, the rules are immature and so is this constant intrusion of trying to prevent the market from falling. Kashif’s right. KSE was made for the filthy rich to become even more filthy rich.

  5. turab (unregistered) on June 17th, 2006 @ 4:02 am

    why can;t you compare the market gloablly to understand the pattern better instead of playing the blame game. There was a major bear run everywhere incl KSE and then major BULL runs same days as others! period… yes its that simple

  6. Inspirex (unregistered) on June 17th, 2006 @ 11:52 am

    Alias, i agree, but i didnt exactly know that these were exactly the same rules that they diverted from last year.

    But a change from the rules in force nonetheless.

    Yes, they should seriously stop playing with the rules and fix the index!

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