On 5th March the Karachi Stock Exchange (KSE) witnessed an unprecedented surge in trading volumes with a turnover of 200 million shares. This bullish sentiment was mainly driven by the SECP’s recent confirmation of imminent reforms to Capital Gains Tax (CGT). Amendments to CGT have been the subject of acrid debate among brokers, regulators and policy makers over recent months, manifesting in sluggish activity on the stock exchanges. However, the buoyant response of the KSE to the upcoming reforms has resulted in a much-needed infusion of liquidity into the capital market.
The recent authorisation of Exchange Traded Funds (ETFs) by the Securities & Exchange Commission of Pakistan (SECP) marks a positive step in the development of Pakistan’s capital market. The regulations primarily concern the listing procedure for ETFs, trading, clearing and settlement of units, disclosure requirements for asset management companies, obligations of authorised participants and fee structure.
Growing at a rapid rate internationally, ETFs are funds that track indexes like the NASDAQ-100 Index, S&P 500 and the Dow Jones. ETFs have gained great popularity internationally as this type of investment product provides an inexpensive and expedient way of buying a large range of assets. This allows people to buy shares across an array of classes and sectors which were previously accessible to institutions or very wealthy investors only. With the introduction of ETFs, the possibilities for Pakistan’s capital market remain immense.
“The SECP approval of regulations for ETFs is an important development for the capital markets in Pakistan. This will add much needed depth to our markets and help bring us on par with international standards. Investor diversification is central to investing and ETFs allow for not only product, but also sector and regional diversification. Given the explosive growth of ETFs internationally, I would suspect local investors to show similar enthusiasm,” says Mustafa Sattar Vice President and Head of Commodities, KASB.
