Falling revenues force brokerage houses to trim operations

Saad Hasan
KARACHI: A number of brokerage houses have cut down operations, closing offices and laying-off staff in the wake of a lacklustre performance of the Karachi Stock Exchange, brokers said on Thursday.

Some of the brokerage houses are running with a bare minimum staff for the last three years and capped bonuses of the top executives, who face an uphill task to fetch business, they said.

“I used to have four offices at the exchange building and two more outside,” said Zafar Moti, a director on the board of Karachi Stock Exchange (KSE).

“Now I have only two and there are others who have done the same.”

There are 198 brokerage companies, but a small number of them remain active. However, there is no concrete information on how many have actually rolled back businesses.

Brokerage incomes have plunged during the last one year in line with the dwindling trading volume. The average daily turnover in May has dropped to 60 million shares. In 2005, the turnover once touched a billion-share mark.

Taxes, double-digit inflation and high cost of share financing have contributed to the dismal performance of the stock market, traders say.

The trading hall, usually bustling with activity, wears a deserted look.

Even the record profits announced by the listed companies failed to woo investors, market participants said. Retail investors have stopped taking interest in the market for almost a year and even the institutional clients are now shifting funds to the government securities, they said.

“We will see a lot of brokerage houses closing their doors if this situation prevails,” said Qasim Ali Shah, head of research at Global Securities. “The capital gains tax (CGT) has become a serious problem.”

Brokers, traders and analysts are unanimous that since the CGT was imposed on income made from trading in shares, investors have shied away from the market due to complexities involved with the filing procedures.

In a bid to tax investors reaping benefits of the rising share prices, the government slapped the CGT in last year’s budget announcement. The move was welcomed by many economists, who want the country’s tax-base to expand.

But Mohammad Sohail, CEO Topline Securities, said that the government revenue has actually dropped after the imposition of CGT. “Companies that need capital to grow their businesses are the worst off as many of them have shelved listing plan.”

Some brokerage houses are trying to attract investors by highlighting the investment prospects in some of the listed companies.

Even the newly-launched Margin Trading System failed to generate activity because of strict requirements, dealers said.

Nadeem Naqvi, Managing Director KSE, acknowledges that high requirement of cash as collateral for borrowing represents an abrupt shift in the regulations.

He told The News that the margin trading system had not been successful because of a sudden shift from no cash margin to a maximum 25 percent.