KARACHI, Oct 14: The Board of directors of the Karachi Stock Exchange (KSE) decided on Tuesday to remove the ‘floor’ from under the KSE-100 index on Oct 27.

“Normal trading parameters of 5 per cent upper and lower circuit breakers will be imposed from that day onwards,” a spokesman for the bourse said.

The KSE had fixed a ‘floor’ under the index at the 9,144 points level on Aug 27 to prevent a further fall, after a fearful plunge in equity values by 41 per cent in less than four months. The measure had brought the market to a virtual halt with volume of shares traded at 11-year low on Tuesday, at just over half a million shares.

The Chairman of the Securities and Exchange Commission of Pakistan (SECP), Raziur Rehman, told Dawn that the ‘floor mechanism’ had been put in place to give the market a ‘breathing space’. He expressed the hope that as the world equity markets were heading towards stability, the KSE would be able to absorb the shock, if any, from soft landing.

Incidentally, the announcement of ‘floor’ removal coincided with the arrival of Prime Minister’s Adviser on Finance Shaukat Tareen, who had expressed his disapproval of the ‘floor’ and turned down a request for closure of the market.

Analysts were worried over a possible 20 per cent drop in the index in the first week after the planks are pulled from under the ‘floor’. The big scare was the foreigners’ selling, who still held $2 billion in equities.

The KSE spokesman said the board had discussed with the finance ministry, SECP, SBP and other stakeholders three critical areas of liquidity; risk management and restoring investor confidence. It said the ministry and the SECP would “implement full set of stabilisation measures prior to Oct 27”.

The confusion at the KSE had been confounded on Friday last when the CFS or ‘badla’ financiers (lenders for investment in equities) decided to halt release of committed funds in the market on perception of high risk. A spokesman for the National Clearing Company of Pakistan (the monitors of ‘badla’) announced on Tuesday decisions to be implemented forthwith: To extend maturities of all outstanding CFS Mk-II (badla) contracts by 22 working days existing on the close of business on Oct 9 and to enhance security margins on outstanding CFS Mk-II positions by 10 per cent. The NCCPL observed: “These steps will enhance risk management on the removal of floor at the stock exchanges.” Analysts said that in the past three days, borrowers could not secure financing in the sum of Rs2 billion in CFS, which was why the NCCPL had decided to roll over CFS for 22 days, in order to offer comfort to the financiers in ‘badla’ market who were withholding release of fresh funds on fear of default.