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Q&A with Mian Ayyaz Afzal Managing Director, Islamabad Stock Exchange

  • Posted On: 1st November 2013
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Q&A with Mian Ayyaz Afzal Managing Director, Islamabad Stock Exchange

Mian Ayyaz Afzal is the Managing Director/Chief Executive Officer of the Islamabad Stock Exchange (ISE) since 2011. He has a vast experience of the capital market as well as the real market. He has served in the Central Depository Company as its Head of Northern Region during 1996 to 2005. He has also served in JS Abamco as Vice President and as Chief Capital Market Operations in a stock brokerage company. Mian Ayyaz Afzal has also been providing consultancy services for capital market, corporate finance and real estate development projects. Presently he is Director on the Boards of Central Depository Company of Pakistan Limited, National Clearing Company of Pakistan Limited, Pakistan Institute of Corporate Governance and JCR-VIS Credit Rating Company Limited. His contribution towards improving operational efficiency, governance standard and effectiveness of these institutions has been widely acknowledged. He has also been a Director of Pakistan Mercantile Exchange Limited. He has participated in many national and international institutes on securities markets including trainings organised by US Securities & Exchange Commission. Mian Ayyaz Afzal has been instrumental in the demutualisation of the ISE. Under his dynamic and sterling leadership, ISE is making notable development. He is also a certified Director from Institute of Cost & Management Accountants of Pakistan (ICMA). He holds a masters degree in Economics from Northeastern University of Boston, M.A, United States of America. He talks to Maryam Syed about the development of the ISE and steps taken to make the country more investment aware.


Can you please elaborate on your professional background?

Mian Ayyaz Afzal: “Professionally I’m an economist. I graduated from Northeastern University in Boston and came back to Pakistan in 1992 and started my career in the Stock Exchange. I feel very privileged and thankful to Allah that I started my career from the Stock Exchange and rose to be the Managing Director of the Islamabad Stock Exchange. When I joined as an MD of the Stock Exchange things were very grave in Pakistan on the economic front and as well as in the ISE. I had to restructure the whole thing because this is a new building and they had to pay back the bank loan and for that I had to restructure the plan.  I gave them the vision of the smart bank plan 73 that is a very famous plan and was successfully implemented in 17 months and we paid off the bank loan of the building. Demutualisation of the stock exchanges happened 6-7 months after I joined as an MD. The bill was passed in May 2012 and we had to meet all the deadlines described in the bill. The bill was titled Corporatisation, Integration and Demutualization. The first step was Corporatisation because before that it was a guarantee limited company. And we had to transform it from a guarantee limited to a public limited company. So for that purpose there was a long list of things to be accomplished. That was done very well on our end within the specified period. The second state was corporatisation and issuance of the shares. So now the Islamabad Stock Exchange is a public company with shareholders. There are called Trading Right Entitlement Holders and these rights can only be obtained once in your life and they are non-transferable. Whoever wants to do serious business can keep it. The third step was integration. All three stock exchanges are independent but it was stated that if from a business point of view it is more lucrative to merge the LSE with the ISE or the KSE with either of the two there was no restriction in the law or from the SECP.

I joined the Islamabad Stock Exchange as MD on December 2011  and at the time the project which was in the pipeline was independent trading engine which we completed and that was a landmark achievement for the ISE. Now it will be linked directly to the Karachi Stock Exchange through member to member.”


What impact did demutualization of the stock exchanges have on the ISE?

MAA: “Following the demutualisation the biggest landmark to be achieved was to sell off 40% of our strategic shares to any strategic investor. All the stock exchanges be it KSE, ISE or LSE are all in the same board and they have to sell it within two years. We have already spent about one year and now we have about 11 months to sell off 40% to a strategic investor and 20% has to go in the IPO (initial public offering) and 20% will stay with those members who were in the book on 30th June 2012, the original members of the respective stock exchanges. The law is applicable for all three stock exchanges. Before the elections and looking at the political situation in Karachi people were quite uncertain about investing and foreign investors which are sensitive to government policies would not invest in an uncertain climate. Prior to the elections we have started a marathon to sell off  40% shares of the ISE and hopefully we will be successful very soon.”


What challenges does the ISE face?

MAA:  “The biggest challenge is that we have to increase the trading volume. And this is the youngest and the second biggest exchange in Pakistan. During the demutulisation process we went through the process of evaluation of assets. Upon evaluation that the Karachi Stock Exchange was worth PKR 8 billion and the Islamabad stock exchange PKR 4 billion and the Lahore Stock Exchange was PKR 1 billion. So being the youngest and second largest we are at an advantage. I want to tell you in the bigger perspective of course Karachi is the premium stock exchange and still the biggest  exchange and the streamline of their cash is mostly from the trading volumes. Islamabad Stock Exchange is an asset and whoever invests into it has several advantages. They have rental income which will be about PKR 250 million annually and they can also earn money from the trading engine as well. When the market expands they have a very good chance to grow faster than other investments. And an advantage also lies in Islamabad being the federal capital.”


How do you encourage listings on the ISE?

MAA: “After the demutualisation all the three stock exchanges are independent. I went to the board and got different options using which we can promote our core business of listing and trading. On the trading side I really appreciate the efforts and participations of the board and their position on the issue that we can give concession to the listing companies. We want to bring small and medium enterprising companies here. I signed an MoU with SMEDA on 17th August 2013 and then we also arranged a seminar with the participation of the Islamabad Chamber of Commerce, Rawalpindi Chamber of Commerce, SECP and CCP. The seminar was focused on encouraging small and medium enterprises. This is the concept of the west as it happened in the London Stock Exchange they also encouraged the small and medium enterprises and after the financial crisis they made a separate counter for small and medium enterprises. For us it is a great opportunity being the youngest stock exchange that we can encourage this and that will be very helpful.

In the current market the cost of capital is going up every day and you just recently saw that the interest rate has gone up and it will further rise because of your currency rate and inflationary and IMF pressure. So you cannot stop yourself and curtail the interest rate that was done in the past. The interest rate will go up and if these companies will come to the exchange this is the best platform to collect their capital through IPOs. If they use the stock exchange platform as opposed to banks they will be protected from the high cost of capital.”

What are your views on the regulatory framework currently governing Pakistan’s capital market?

MAA: “A lot of things have happened and I really appreciate the work done by the SECP. The biggest thing they have done on this side is the demutualization bill and regulation work. Now all the three stock exchanges will be governed by a uniform regulatory framework which is very good.”

The ISE is still in its nascent stages, what impact will the development of the ISE have on Pakistan’s capital market?

“As I just mentioned that our concentration is on the small and medium companies and the cost. So we are implementing cost effective plans and strategies for SMEs. ISE will be a big platform for small companies who will come here and we are giving them a maximum discount of the cost and regulation price. We have also introduced e-filing for these companies, thus doing away with the expense of printing annual reports. With the IT revolution around the global and social media boom now I am happy to say that we are the first stock exchange starting mobile trading.  60% of Pakistan’s population has cell phones which is one of the highest in the world.”

It was suggested in the recent past to merge the ISE and LSE into one stock exchange in order to attract foreign investment following the demutulisation process. What are your views on that?

MAA: “This discussion has been brought up in the boards and if it proves to be a business win win situation for both of us we will go for it.”

How conducive is the investment environment in Pakistan and how has foreign investment fluctuated over the years?

MAA: “There are a few things I want to tell you about the capital market. The way things work is if you compare it with the return, the index KSE was up about 35% and the return is about 35% and if you make the comparison with the bank returns, government PIPs, defense saving and gold. On the other side the capital marketization which is about PKR 328 billion within the last one decade. These were the right issues which the companies have been issued in the capital market and that is a big thing for Pakistan. And the capital the government raised through privatization via the stock exchange between 2003 to 2007 was PKR 122 billion.  The third thing is pay out from investor protection fund of KSE  and other stock exchanges to the investors to date is PKR 531 million. And the percentage of investors who received the 100% compensation is 150%. So these are the certain things which are very positive about the Pakistan market and the way it performed in the past.”

  How aware is the general public of Pakistan with regards to smart investment decisions and what has the ISE done to educate investors?

MAA: “This is a very important question. We started off a campaign last year in summer 2012. ISE, KSE, LSE, CDC, SECP we planned a whole team that worked on the investor education programme. As a financial manager in the market and a Pakistani it is our responsibility to educate the general public. We only have about 200 000 CDC investor accounts which is the lowest in the region. In comparison to other countries with the same kind of environment Pakistan is greatly lacking in investor education. ISE did a lot of work for that purpose. We did about 100 visits to all the universities in the region ranging from KPK to Jhelum covering even the northern areas. ISE arranged seminars in collaboration with the chamber of commerce and the universities just for the purpose of awareness. The roots of this exercise are long term. It won’t return anything immediately but it creates awareness among the investors of the future. The most critical thing at the moment is the law and order and power issues. This government looks like they have the will and policies in place to fix the problems and once they are fixed the investment within Pakistan will improve.”

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