A division bench of Sindh High Court (SHC) Monday issued notices to all the three bourses, National Clearing Company of Pakistan Limited (NCCPL), Securities and exchange commission of Pakistan (SECP) and the finance ministry on two identical petitions filed by United Bank Limited (UBL) and IGI Investment Banks Limited challenging the impugned directives of NCCPL.
The petitioners claimed in the petitions that NCCPL (respondent no 2) has developed and established an automated platform under the name and style of Continuous Funding System Market. This system is referred to as CFS Mark-II aimed to provide funds to members of all three stock exchanges in Pakistan on a centralised basis along with comprehensive risk management.The petitions said the CFS Mark II System is designed to provide financing to brokers and their clients to purchase securities. Such funding is arranged by NCCPL by raising finances from CFS Financiers such as the Petitioner.The petitioners have challenged the of impugned illegal directives, of which the petitioners have already “under went business disruption” and it is “apprehended that the petitioners may incur additional /extra costs” due to actions by the respondent No 2 which are confiscatory in form and in substance and amount to expropriation.”
The bench comprising Justice Khilji Arif Hussain and Justice Syed Mehmood Alam Rizvi issued notices to Karachi Stock Exchange, Lahore Stock Exchange, Islamabad Stock Exchange and NCCPL, SECP and finance ministry for December 16.Earlier, the bench heard arguments in two identical petition filed by UBL and IGI Investment Bank Limited who submitted their major grievances as financial institutions.The petitioners are in effect a secured lenders and Respondent No 2 has provide regulations and procedures for the protections to minimise risks under taken by such CFS Financiers (such as collection of margin and marked to market losses).On the other hand the Respondent No 2 arranges financing for essentially speculators as they purchase securities with borrowed money and consequently wish to maximize their gains by taking a leveraged positions. Thus such speculators are expected to and indeed the Respondent No 2’s Regulations and Procedures requires them to bear the losses on account of their leveraged positions.The petitions said the impugned directives and the proposals circulated on 6-12-2008 is an attempt by Respondent No 2, at the behest of Respondent No 1, to unilaterally amend the terms of the agreement entered into between the Petitioners and Respondent No 2.
They said the impugned directives and the proposals circulated on December 6 are, even otherwise, contrary to public interest, does not protect the interest of the investors and against the interest of the capital markets, as all future financing of equity markets and/or transactions could be jeopardised. As such, the same have been issued by Respondent No 2 without lawful authority. The Petitioner, therefore, sought a declaration that the Impugned Directives issued by Respondent No 1 and the directions/notices issued therein by Respondent No 2 are illegal, void ab initio and of no effect whatsoever.
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