KARACHI, Dec 6: The meeting of the Securities and Exchange Commission of Pakistan (SECP) with the stakeholders on Saturday ended on an inconclusive note as consensus could not be reached on some of the core issues.

One market participant said that the meeting concluded on a bitter note as the apex regulator and stakeholders could not see eye-to-eye on a few important matters, following which chairman SECP Razi-ur-Rehman Khan hinted at the possibility of pulling the planks from under the KSE ‘floor’ through the issuance of a directive, in case resistance was offered over its voluntary removal on Dec 15.

A participant of the meeting said that at the heart of the problem was the remaining amount of Rs11 billion in the Continuous Funding System (CFS Mark II). The term modified form of the simple ‘badla’ relates to investment in equities on borrowed money.

The apex regulator had already announced on Friday its plan to re-open the market, by removal of the ‘floor’ on 15th of the month. But many brokers thought that until the issue of Rs11 billion in badla was resolved, removal of the ‘floor’ could result in mass brokers defaults, which in turn could pose systemic risk to the exchange and also have a domino effect on the financial institutions, including banks and mutual funds.

The problem had come to the fore, following the refusal of the government to extend the promised Rs50 billion package, after the IMF directives, which debarred the use of ‘public money’ for stock markets bail-out.

A broker said that on Saturday the two sides considered the ‘proposal’ forwarded by the exchange on how to deal with the ‘badla’ amount. The proposal in two parts stipulated the forced rollover of the badla for six months with a flat interest rate of 10 per cent per annum and collection of margin.

In an earlier meeting on Friday with the Mutual Fund Association of Pakistan (Mufap) and investment banks, which are believed to have substantial investment in CFS, the association had disputed the apex regulator’s proposal of six months rollover at 10 per cent interest rate on 35 per cent ‘hair cut’ and instead asked for rollover for four months with ‘haircut’ of 45 per cent and interest rate of Kibor plus 2 to 3 per cent.

A participant of the Saturday’s deliberations said that the meeting was stuck on the issue of margins on the CFS rollover. For many reasons, said an analyst, the apex regulator was bent on pushing the extension of ‘floor’ no further than Dec 15.

For one, instead of the short ‘breathing space,’ the ‘floor’ had refused to budge even after completion of 100 days, which marked the longest ever closure of a stock market in the world. Second, many brokers and foreign investors had displayed a high pitch of anxiety on their inability to seek an exit and third, the famous Morgan Stanley Composite Index (MSCI) was believed to have given a short deadline to the regulator for removal of the floor, failing which the Pakistani equity markets ran the risk of being thrown out of the index, with an unsavory impact on long-term local and foreign investment in the country.