years

The crash of 2005 and market freeze of 2008 are a prime example of bad decision making and even worse regulation by those in charge

By Zain Naeem

The stock market crashes of 2005 and 2008 were an example of the markets doing all that they could in their own favour at the expense of the investors and getting away with it scot free as they had captured the board of Karachi Stock Exchange and, by extension, the SECP. The lessons that had been learned in the crash of 2000 (read article published in an earlier issue of Profit titled “Anatomy of a stock market crash) had been forgotten and as the markets were rallying again, it was felt that there were checks and balances which would protect from another crash.

Sadly, that was not the case.

What was seen was a perfect example of how the big market players looked to game the system for their own personal gains and when things did get out of hand, they protected themselves and evaded any accountability or punishment. SECP also played its part in the crisis by sleeping at the wheel while the crisis was approaching, letting the market players act on behalf of the whole market and in the end put in a few paltry actions which were reactive at best and ineffective at worst. It was the capture of the KSE and the motive of profitability which characterized the crisis primarily.

Adeel Zafar, a prominent investor and former broker at Lahore Stock Exchange, states that “SECP has failed to provide a level playing field on a consistent basis to the investors and brokers against the big market players. Due to this, the small investors have always been let down.”