Investors at the stock exchange lament that they are being robbed of their hard earned savings owing to an abrupt ‘suspension’ of trading of a number of companies by regulators.

When the bourse announces the suspension of a company, it leaves in its wake a trail of clueless investors who have been cheated — for suspension is a bar on trading in usually low-priced shares of a company, bringing the value of those shares to virtually naught. Currently around 104 corporations are ‘under suspension’.

Back on August 6, 1997, the KSE had set up a ‘defaulters’ counter on which companies with a bad track record were relegated. By the summer of 2006, no fewer than 154 companies, which worked out to a quarter of the total 657 companies listed on the exchange, were consigned to the defaulters’ counter.

But investors could still trade in those securities. It was after a couple of years when delinquent firms failed to rectify their defaults that they received ‘suspension’ orders. But all that has changed.

The PSX website and its daily stock quotations bulletin says that companies will be placed on the ‘defaulters’ counter for violations under section 5.11.1 of the listing regulations.

Charges under section 5.11.1 include (a) failure to commence commercial production for three years from the date of formal listing; (b) failure to hold annual general meetings for two consecutive years; (c) failure to pay annual listing fees of the bourse for two years/penalties and other dues and (d) failure to induct shares in the Central Depository System (CDS).

“Why must my holdings be lost in the regulatory tussle between the bourse and the company?”

One beleaguered shareholder whose investment got stuck up in an abruptly suspended company argues that some of the reasons for default and hence the immediate suspension of companies were ridiculous — failure to induct shares in CDS or to pay the stock exchange listing fees. “Why must my holdings be lost in the regulatory tussle between the bourse and the company,” he raised a pertinent question.

The Exchange officials have continued to defend and justify suspension as being in public interest. They argue that defaulters are suspended to protect new, unsuspecting investors, who might buy into dead stocks and find themselves trapped. Fair enough, but what about the investors who have already poured their savings in such companies?

The latest in the series is Abdullah Shah Ghazi Sugar Mills Ltd. (AGSML) The bourse pushed the company from normal to the defaulters counter on March 6 this year and suspended it the same day, which meant that the exit doors were virtually closed, trapping unsuspecting shareholders.

The company was charged under default 5.11.1(b) — failure to hold annual general meetings for two consecutive years. A couple of other handy examples in the last two years are Silver Star Insurance Co, charged under the same section 5.11.1(b) and abruptly suspended on May 27, 2016. Mandviwala Mauser Plastic Ind.Ltd also suspended overnight on Dec 8, 2015 without even a single day placement on the defaulters’ counter, which could have offered an exit route to investors’ trapped in those stocks.

“Why must investors be punished for a fault which lies squarely on the directors due to negligence in performing their fiduciary duties such as holding AGMs”, said an irate investor. “It is the directors, who earn fat sums in remuneration, who should be hauled up”.

Kamran Ahmed, a chartered accountant who finds his money stuck in AGSML suggests: “A company that plays rogue should be put on the defaulter counter and given two years time to provide a safe exit route to investors in that stock”.

He also recommends opening up other counters, besides the existing normal counter — a risk counter where companies failing to comply with regulations should be placed so that investors are aware that those companies could be placed on the defaulter counter at any time and later suspended.

And companies on a defaulter counter ought to be given 6-12 months to rectify the error before suspension.

The bourse would argue that prior to the suspension of a company, an announcement is made. But that can scarcely be considered an ‘alert’ for the fact that the matter, instead of being flagged as ‘material information’ is marked as ‘others’, which most investors do not bother to see for ‘others’ also encompasses petty matters such as shifting registered office of a company or purchase/sale of shares by directors etc.

At the Bombay Stock Exchange, before suspending companies that are non-compliant, adequate notice is given to the market through media releases and advertisements.

It has to be conceded that under a recent reform, the National Clearing Company of Pakistan Limited (NCCPL) instantly alerts a shareholder through a text message or email when a security is ‘moved’ from his account. The NCCPL could be given the task to also forewarn shareholders if a corporate is under threat of ‘suspension’.

Published in Dawn, Economic & Business, March 27th, 2017