Stock market reelingArchive
THE wild swings in the stock market might be a good thing if they are genuinely due to the regulator clamping down on unethical practices by brokers, something the latter claim.
Over the years, brokers have developed a habit of functioning without any oversight and of indulging in highly risky behaviour that goes beyond what is allowed under the law. And they are doing all that with their clients’ money.
There have also been recent cases of brokers making off with their clients’ funds when losses from their excessively risky trades mounted.
Take a look: Wilful defaulters to face the music, says SECP
The regulator is duty-bound to protect the interests of the clients and must enforce the rules that bear upon the segregation of funds by brokers, as well as other types of illegal risks being taken by them.
If such action produces wild swings in the market because various parties run for cover, so be it. The regulator should act without fear of the consequences of its actions.
The market needs to find its real valuation level, which would obtain in the absence of illegal and unethical practices, and the whiff of uncertainty plaguing the market these days might be a healthy disruption in that regard.
If the swings do indeed owe themselves to sharper regulatory scrutiny as some are claiming, then they are signs of strengthening of the capital markets and should be temporary. But if they are coming from the volatility of global markets, it becomes all the more important that excessive risk-taking behaviours be curbed to reduce the kinds of vulnerabilities that can result in a catastrophic crash.
The regulator should go further in its actions and also bring behaviours such as manipulative trades and insider trading under scrutiny. Such actions are likely to net some of the bigger fish that make our stock market so volatile and prone to disruption.
The scrutiny of the market’s sources of vulnerability should continue, and perhaps even be ramped up further.
Published in Dawn, September 9th, 2015
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