IN a laudatory development, the three stock exchanges in the country have been merged into one — the Pakistan Stock Exchange. But the real work will begin once the applause and self-congratulations die down.

The merger sees an old dream come closer to realisation. It was little more than a decade ago that the SECP first released its report on the demutualisation of the stock market — the process where ownership and trading rights at the exchanges are separated from each other.

The idea was to usher in an era of privately owned and operated stock markets so that the necessary investment in upgrading the infrastructure of the exchanges could be mobilised and superior oversight could restrain the power of the large brokers to manipulate the market and engage in unethical trading practices.

The integration of the three exchanges is an essential step in that direction. With three separate stock markets, and with one of these dominant, the search for a private investor was complicated because it was hard to find an interested party for the Lahore and Islamabad exchanges, given their tiny size, and any private investor was wary of acquiring ownership of one exchange in Karachi while the other two remained in government hands.

That problem has now been solved. But it is important to keep in mind that the integration was not a goal unto itself; it was, in fact, a means to an end. The ultimate objective was always to locate a private investor willing to acquire ownership rights over the exchange and take on the responsibility of operating the market and serve as the frontline regulator. That search is still on, and it remains to be seen whether or not the integration will spur the process on.

Recently, the markets have given us some indication of improved stability. The arrest of some senior management figures from a leading brokerage has not induced sharp volatilities in the market, despite some declines in recent days.

Previously, the market was virtually hostage to the power of large brokers who could engineer steep drops if the regulator or the law enforcers cast a glance in their direction.

The absence of sharp volatilities may bode well for market stability in the present day, but the arrests also speak of continuity in the kinds of practices that demutualisation is supposed to eradicate.

For the integrated stock exchange to be an attractive proposition for foreign investors, the power of the brokers and their reach in the upper levels of the country’s politics must be dealt with so that they do not remain a source of deep concern.

Curbing this power, and getting the brokers to focus exclusively on trading as the way to make money on the stock market is the big challenge before the government. An integrated stock exchange can help in this process, but there is no guarantee that it will.

Published in Dawn, January 12th, 2016