The Mutual Funds Association of Pakistan (MUFAP) has expressed its
immediate disagreement on the arbitrary move by the Security
Exchange Commission Pakistan (SECP) to re-price Term Finance Certificates (TFCs).
Open end income funds are likely to be forced to temporarily suspend issuance,
redemption and pricing of their units.
The mutual fund industry has experienced remarkable growth and has been able to pay
handsome dividend/ return to its unit holders. The industry demonstrated exceptional
resilience in the face of acute liquidity problem generally faced by the financial sector
and continued to meet redemptions (over Rs. 80 billion in last six months) of its valued
unit holders.
Shamshad Nabi, CEO, MUFAP in a statement said, “In order to meet any eventuality in
the future, the industry was in constant touch with the government of Pakistan, State
Bank of Pakistan and SECP, and as a result of these meetings, the Government agreed
to guarantee the ‘A’ rated TFCs held in the investment portfolio of income funds to
enable them to raise liquidity from the banks.”
“However it is unfortunate that instead of meeting the liquidity demand of mutual
funds industry as has been done by SBP for the banks, there has been dragging of feet
by the banking system in organizing the liquidity and on top of that the SECP has taken
a counterproductive step when industry was in process of raising liquidity from a
consortium of banks and an amicable solution was in sight, by issuing a circular to reprice
Term Finance Certificates (TFCs),” he added.
The SECP has issued Circular No. 26/2008 dated November 5, 2008, related to repricing
of Term Finance Certificates (TFCs). Mutual Fund Association of Pakistan
(MUFAP) would like to clarify that mutual funds have been pricing all TFCs as per
NBFC Regulation, November 2007, and it is the considered view of MUFAP that SECP’s
arbitrary decision to re-price all TFCs at various discounts has been taken without
consultation with the industry and it is in contradiction of the methodology as stated in
SECP’s own Rules and Regulations.
The spokesman informed, “MUFAP had already communicated to SECP that it had set
up a committee of its members which would look into the issue of valuation of fixed
income securities and would submit their recommendations to them shortly. However,
SECP without waiting for MUFAP recommendations went ahead with this arbitrary
pricing formula. The said circular derived its authority under section 282 D of the
Companies Ordinance 1984. However MUFAP is of the view that the said circular is
neither in the interest of the general public nor the unit holders, who will have to take
unnecessary reduction in unit prices as a result of this decision.”
In view of the SECPs arbitrary decision with regard to re-pricing of TFC and with a
view to protect the interest of unit holders, particularly small investors, open end
income funds are likely to be forced to temporarily suspend issuance, redemption and
pricing of their units till the matter is resolved.
The mutual fund industry has resolved that it will find a resolution in the best possible
manner for its investors within the shortest period of time.
Exchange Commission Pakistan (SECP) to re-price Term Finance Certificates (TFCs).
Open end income funds are likely to be forced to temporarily suspend issuance,
redemption and pricing of their units.
The mutual fund industry has experienced remarkable growth and has been able to pay
handsome dividend/ return to its unit holders. The industry demonstrated exceptional
resilience in the face of acute liquidity problem generally faced by the financial sector
and continued to meet redemptions (over Rs. 80 billion in last six months) of its valued
unit holders.
Shamshad Nabi, CEO, MUFAP in a statement said, “In order to meet any eventuality in
the future, the industry was in constant touch with the government of Pakistan, State
Bank of Pakistan and SECP, and as a result of these meetings, the Government agreed
to guarantee the ‘A’ rated TFCs held in the investment portfolio of income funds to
enable them to raise liquidity from the banks.”
“However it is unfortunate that instead of meeting the liquidity demand of mutual
funds industry as has been done by SBP for the banks, there has been dragging of feet
by the banking system in organizing the liquidity and on top of that the SECP has taken
a counterproductive step when industry was in process of raising liquidity from a
consortium of banks and an amicable solution was in sight, by issuing a circular to reprice
Term Finance Certificates (TFCs),” he added.
The SECP has issued Circular No. 26/2008 dated November 5, 2008, related to repricing
of Term Finance Certificates (TFCs). Mutual Fund Association of Pakistan
(MUFAP) would like to clarify that mutual funds have been pricing all TFCs as per
NBFC Regulation, November 2007, and it is the considered view of MUFAP that SECP’s
arbitrary decision to re-price all TFCs at various discounts has been taken without
consultation with the industry and it is in contradiction of the methodology as stated in
SECP’s own Rules and Regulations.
The spokesman informed, “MUFAP had already communicated to SECP that it had set
up a committee of its members which would look into the issue of valuation of fixed
income securities and would submit their recommendations to them shortly. However,
SECP without waiting for MUFAP recommendations went ahead with this arbitrary
pricing formula. The said circular derived its authority under section 282 D of the
Companies Ordinance 1984. However MUFAP is of the view that the said circular is
neither in the interest of the general public nor the unit holders, who will have to take
unnecessary reduction in unit prices as a result of this decision.”
In view of the SECPs arbitrary decision with regard to re-pricing of TFC and with a
view to protect the interest of unit holders, particularly small investors, open end
income funds are likely to be forced to temporarily suspend issuance, redemption and
pricing of their units till the matter is resolved.
The mutual fund industry has resolved that it will find a resolution in the best possible
manner for its investors within the shortest period of time.
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