.jpg)
During the calendar year 2003, the badla market has come a long way.
The KSE management has devised quite a few risk management initiatives during the year, like cap of 18 percent rate of return, limit on badla availability in 30 selected scrips and introduction of new exposure rules.
Brokers showed some concerns over new exposure rules, but the rules would remain intact until next review.
The Review of 2003 revealed that during the year, the badla rates at KSE touched its peak level of 49.4 percent on January 16, while the highest level of badla investment at KSE in 2003 was Rs 25.4 billion on September 15 when the stock market was around 4600 levels.
The lowest badla rate in 2003 was 5.37 percent reached on April 24, while the lowest badla investment level reached during the year was Rs 5.9 billion on March 11.
During the year 2003, average badla rate at KSE was 12.2 percent as compared to 2002 average of 13.4 percent, thanks to the cap imposed by the management during the year.
The bull-run tends to induce small investors and weak holders to go for badla financing, in anticipation of continuity of market surge, which pushes the badla rates to heights and helps badla financiers earn as much as 18 percent to 24 percent risk-free return without making any real effort.
Such high badla rates or bearish trend force the weak buyers to get out of the market abruptly, and offload their positions in losses and, in turn, the same cartel of badla financiers buys these shares. A leading trader said this is a routine cycle after every few months.
Undisclosed trading, followed by the COT stringent measures, such as COT for 10 days, capping of COT premium rates, and COT only in 30 scrips implemented by the Exchange are the major factors in protection of the investors' interests, that saved the market from any major debacle in the last one year.
In the past, the crises caused due to market manipulation by badla providers were handled as post-event exercise and, at times, even market was forced to close for days together.
During January 2003, the KSE-100 index touched 2955 points (January 16, 2003), but did not sustain long as the COT rates reached as high as 49.42 percent per annum.
This resulted in a drop of 345 points in just five days. Although the Exchange has changed the COT procedures for 10 trading days whereby finances may release the COT on any day before completion of 10 days period, whereas the financier will be able to release COT after completion of 10 days.
This measure helped, but not adequately to brought down the COT rates, as again the index dropped by 300 points in just two sessions when the market touched its all-time high in the history at 4604 points on September 12, 2003.
However, in September 2003, the crisis situation stabilised quickly in comparison with the past due to the fact that badla rates were capped in March 2003 at 18 percent per annum in relation to 30 eligible companies, and for the rest of the companies at 24 percent per annum.
And now finally from December 15, 2003, the COT is allowed in only 30 eligible companies.
