In order to maintain the confidence of the investors in the securities market and to ensure adequate protection for such investors, the Securities & Exchange Commission of Pakistan has issued directives to halt the trading facilities of KASB Securities Limited (KSL) at the Karachi Stock Exchange Ltd (KSE) and Pakistan Mercantile Exchange Ltd (PMEX).   

It may be mentioned here that State Bank of Pakistan (SBP) has imposed a 6 month moratorium on KASB Bank Limited (KBL) effective from November 14, 2014. KSL is a majority owned subsidiary of KBL. KSL uses KBL as the settling bank for the purpose of settlement of transactions executed at KSE. Further, as on November 14, 2014, KSL had a deposit of more than Rs361 million with KBL primarily pertaining to its clients. In addition, KSE had deposits of more than Rs174 million at KBL which represented margins deposited by the KSL against trades executed at KSE.

As a result of imposition of the moratorium by SBP, the solvency and liquidity of KSL has significantly deteriorated, creating systemic risk for the market. Moreover, net capital balance certificate of KSL as of June 30, 2014 reflected a net capital of Rs267 million.

After the restrictions on the bank deposits with KBL, the net capital of KSL has declined considerably. Therefore, to uphold the smooth and interrupted operation in the securities market and to avoid a consequential financial crisis, the SECP immediately issued the directives.

The SECP has directed the KSE and PMEX to suspend all trading facilities of KSL with effect from the opening of market on November 18, 2014 till further orders. Moreover, KSE and PMEX are directed to ensure and continuously monitor that appropriate arrangements are made by KSL for timely payments, upon demand, to its clients, to whom money is payable by KSL. Central Depository Company has been directed to restrict all movement of securities from the participant umbrella of KSL and only allow portfolio transfers from the sub-accounts of the clients. It is pertinent to mention that quantum of client securities held in KSL custody is around Rs 160 billion. The National Clearing Company has also been directed to facilitate all pending settlements of KSL in respect of trades executed till November 17, 2014 and net off the settlement obligations of KSL on November 18, 2014 with the settlement obligations of November 19, 2014.

It is also worth noting that recently the SECP had levied penalty on the KSL vide its order of February 19, 2014 on account of failure to ensure appropriate segregation of client funds.

Investors are advised to contact the management of the KSE and CDC for recovery of their cash amount and transfer of securities from KSL respectively. The SECP resolves it commitment to protect the interests of the market participants, preserve the integrity of capital market and enhance the confidence of investing public in the securities market.