Tuesday, September 27, 2022

Manipulation at PSX should not go un-noticed


Adil Ghaffar
Experienced Chief Executive Officer with a demonstrated history of working in the financial services' industry. Skilled in Negotiation, Business Planning, Microsoft Word, Accounting, and Team Building. Strong business development professional with an ACA focused in Accounting and Finance from institute of chartered accountants of Pakistan. Contact: [email protected]

Pakistan’s history is full of instances when powerful lobby manipulated stock market for their personal gains.

In April 2019 once again rules were manipulated in such a manner that yet again small investors were duped to deprive and incurred heavy losses. This time, this should not go un-noticed and these manipulators, rather culprits, should be taken to task.

This will be the right time to hit the nail right on its head before the same is put to rest under the carpet after the blame game.

Basic Facts

On April 30, 2019 Acting Chief Regulatory Officer (ACRO) issued a Notice to all TREC holders elucidating Rule 13.5.2 of PSX Regulations relating to execution of sale/blank sale in Deliverable Futures Contract (DFC) Market. The above notice also stated that strict action will be taken in case of observant of any non-compliance.

Rule 13.5.  BLANK  SALE  AND COMPLIANCE of PSX Regulations

  • 13.5.1.  A  Broker  on  its  proprietary  or clients’  accounts  on  UIN  basis  shall  be  allowed  to  make  Blank  Sale  up  to  0.5%  of  the  Free Float  of  a  scrip  or  Rs.50  million,  whichever  is  higher,  in  the  Deliverable  Futures  Contract  Market  subject  to  maximum  blank sale  of  3.0%  of  the  Free-Float  of  a  scrip  by  such  Broker  for  all  its  accounts  including  proprietary  and  clients’  accounts  at any  given  time  during  a  Contract  Period.
  • 13.5.2.  The  Broker on  its  proprietary  account  or  client’s  account  in  Deliverable  Futures  Contract  Market  shall  execute:

            (a)  Sale  through  normal  sale  order  window  in  the  system  if  the  broker  or  the  client,  as  the        case  may  be,  either  owns  the securities  or has  a  Pre-Existing  Interest;

           (b)  Blank  Sale  within  the  threshold  permitted  under  sub-clause  13.5.1  above  through  special  order  window  designed  in the  Trading  System  for Blank  Sale.

Provided  where  the  Broker  executes  Sale  through  the  special  order  window  as  mentioned  in  sub-clause  (b)  of  this  clause or  executes  Blank  Sale  through  the  sale  order  window  as  mentioned  in  sub-clause  (a)  of  this  clause  due  to  inadvertent mistake,  such  Broker  shall  be  required  to  modify  such  sale  through  the  interface  provided  in  the  Trading  System  for  this purpose  during  the  sale  modification  session.  Such  modification  session  shall  be  subject  to  a  fee  as  per  the  Deposit,  Fee, Contribution  and  Other Sums  Schedule. 

Provided  further that  in  case  the  Broker  fails  to  modify  such  sale  during  the  sale  modification  session,  the  Exchange  shall take  disciplinary  actions  as  provided  in  Regulation  20.9.


13.5.3.  Pre-Existing  Interest  in  order  to  remain  qualified  for  this  purpose  should  continue  to  exist  until  the  sale  position  in  the Deliverable  Futures  Contract  Market  is  squared  off  or  settled  at  the  expiry  of  the  Deliverable  Futures  Contract.    

Bold and underline added for emphasis.


Important dates – Rule 13.5
  1. Introduced in 2002 under Regulations for short selling under regular market, 2002;
  2. Rule book of KSE approved by SECP on April 10, 2014 Gazette notified on June 18, 2014;
  3. Pursuant to integration of stock exchanges effective January 11, 2016 Rule book KSE renamed as PSX Regulations;
  4. Amended in Rule 13.5 on September 21, 2017;
  5. PSX Notice 5001 dated August 31, 2018 on the subject Modification interface for Deliverable Futures Contract Market (DFCM) to rectify sales erroneously executed through sale order window (F5) or (F8); and
  6. PSX Notice N-539 dated April 30, 2019.


Change in interpretation of the Rule 13.5.2

One can observe that a rule introduced in year 2002 and after amendments till April, 2019 (i.e. after 17 years) was suddenly interpreted differently and its new interpretation and methodology was changed overnight on April 30, 2019. There is no doubt that we all learn over a period of time but sudden changes during the currency of Deliverable Futures Contract for May 2019 is a matter of grave concern.

It is an internationally accepted unwritten rule that we cannot and should not be allowed to change rules during the pendency of contract. Number of reported Court cases can be checked on the topic of Rules of the game cannot be changed midway.

Rules changed or rather new interpretation of existing rules, of blank and short sale emphasised. As a result hedgers, providing volumes and price discovery, were barred from swapping/hedging positions between regular and future markets

This is actually what happened. On April 29, 2019 KSE 100 index closed at 37,026 with average volume for April 2019 around 200+m. Hedgers were barred on April 30, 2019 not only during market hours but also between the May Contract of DFCM. Following table will clearly depicts the impact of change in rules during the pendency of a contract.


Date Volume In Million KSE 100 index
  Regular Future Total % Closing Change %
25-04-19 107 134 241 100 36,796 292 100
26-04-19 144 175 319 33 37,130 334 0.91
29-04-19 177 94 261 8 37,026 104 0.28
30-04-19 111 48 159 34 36,784 242 0.67
02-05-19 68 24 92 62 36,547 237 0.65
03-05-19 64 21 85 65 36,122 425 1.18
06-05-19 71 33 104 57 35,605 517 1.45
07-05-19 65 30 95 61 35,631 26 0.07
08-05-19 113 35 148 39 35,035 596 1.70
09-05-19 78 27 105 56 34,887 148 0.42
10-05-19 39 14 53 78 34,716 171 0.49
13-05-19 121 34 155 36 33,900 816 2.41


KSE 100 index lost 3,126 translated in 8.44 % in just 09 working days from April 30 to May 13 and will further deteriorated with the passage of time as we move close to last days of Deliverable Futures Contract for the month of May, 2019. When investors’ who bought shares under DFCM for May’19 will not be able to find hedgers and will be forced to square their positions to avoid deliveries. End of DFCM May 2019 appears to bring catastrophe in PSX.



What was newly interpreted in the Rule 13.5.2 is basically the term pre-existing interest. Initially, from year 2002 to April 29, 2019. This pre-existing interest was never considered as pre-existing when hedgers used to buy back using F4 key from Regular market. On April 30, 2019 it was evolved as pre-existing interest, hence from April 30, 2019 any purchases using F4 key in Regular market will be considered as pre-existing interest for any sale through F8 key in DFC market. Previously, PSX used to net-off sale in F8 in DFC market with that of purchases in Regular market. This set-off, after the change in interpretation of pre-existing interest will not be admissible any more.

This created panic as hedgers were using computer systems to execute both sale/purchase transactions on real time basis. It is humanely impossible to execute such transactions due to spread, timing and quantity.

The penalties indicated were too high to execute further business. The above chart reflects aftermath of new interpretation. Volumes dried, KSE 100 index nosedived.


Interpretation changed overnight to benefit whom 

Apprehensions are that shrewd players holding long positions kept their witty-eyes on the daily open position in Deliverable Futures Contract Market displayed by PSX on it’s website, both script-wise and broker-wise. Shrewd players were watching and computing over last few months the quantities displayed on PSX website to get hold of short sellers. The numbers displayed under open interest in DFCM often crossed the free-float of the concerned script. They were stranded, when even after few months no one showed interest to cover what shrewd players thought as short sale. Panic button pressed as long position kitty was full and stock market did not show any sign of recovery.


But, when luck is not on your side, nothing can benefit. After inquiry, it was revealed that:

  1. Data reflected on PSX website is based on gross rather than net sale;
  2. Clean chits were given by PSX management to hedgers from time to time;
  3. Providing trading system is the prime responsibility of PSX;
  4. Amendments in Rule 13.5 was made in September 2017 whereas modification interface developed after one year by PSX;
  5. Even after development of modification interface in September 2018, No one at PSX bothered to implement Rule 13.5.2 which clearly reflects overnight change in interpretation;
  6. Almost all stock brokers are in hedging business and practice over the years will prevail rather than change in interpretation of rules;
  7. Strict action will be taken in case of observant of any non-compliance, though communicated vide PSX notice 539 dated April 30, 2019, but could not be imposed due to reasons mentioned above. 

This adventure, incurred heavy losses not only to small investors but to the Country as well. Someone should be taken to task as to why Rules were interpreted and changed during the match that is during the Deliverable Future Contract for May 2019.

Read also: Pied Pipers led the country away from documented economy

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