THE recent unsavoury happenings at Pakistan`s equity market provide further evidence that the local bourse is not for investors with small means.

The two latest casualties are shareholders of Dewan Cement Ltd (DCL) and WorldCall Telecom.

Let`s first consider the case of the beleaguered cement stock. On Jan 26, the Pakistan Stock Exchange (PSX) warned DCL through a public announcement that it would be consigned to the `defaulters` counter` from Jan 29, and trading in the stock would be suspended after subsequent procedure.

Since the suspension of a scrip means that the exit doors are virtually closed, trapping the unsuspecting shareholders, nervous investors threw away the DCL stock which saw its price spiral down to its lower circuit the permissible decrease of five per cent in a share value during a single trading day.

However, the same day (i.e. Jan 29) a stay order from a court compelled the PSX to transfer back the stock from defaulters to the regular counter. The share shot back from the lower to the upper circuit.

On Wednesday, a notice by a buyer announcing its intention to purchase the majority stake in DCL was released. And even before the intention of such an offer was made public, the stock had already hit two more upper circuits. In three trading days, the share price of DCL rose by Rs3 on Wednesday to close at Rs26 the highest price in eight months.

Did some people know what others did not and were the small investors in the stock left short-changed? Giving the benefit of doubt, the sequence of events in DCL could have been construed as coincidences, but in the last four to six months the events have followed the same pattern in numerous shares: the PSX issues a notice of pushing a stock from regular to defaulters` counter with the eventual threat of suspension.

A stay order comes and the stock climbs back on the regular counter. And investors keep turning their heads back and forth as if watching a game of tennis.

It is noteworthy that DCL on most days is the volume leader among all traded shares at the PSX, with over 10 million shares changing hands in a single day.

Only Jan 30, WorldCall Telecom was served a notice that it was placed on the defaulters` counter. The stock plunged to hit its lower circuit and, among the 366 active stocks that day, was the volume leader with trading in as many as 35m shares.

On Wednesday evening, reliable reports indicated that a stay order was secured from a court after the close of trading time.

This is how small investors in WorldCall have been robbed of their hard-earned savings by well-planned deceit. The unsuspecting petty retail investors are the losers, but who are the gainers? It is for the apex regulator to catch the culprits. Stockbrokers, company officials, analysts and insiders in regulatory bodies could all or singly be engineering plans to profit at the expense of retail investors. The regulator has only to identify those who treated equity traders to sumptuous dinner in a five-star hotel where the virtues ofWorldCall were ingrained in their minds with suggestions to sell the stock to clients two days before the notice of the scrip`s transfer to defaulters` counter surfaced.

Incidentally, the kind of fraud detailed above is perpetrated almost always in penny stocks in which millions of shares change hands daily. The change of price by even a single rupee on such huge volumes must mean fortunes for the perpetrators.

When the bourse announces the suspension of a company, it leaves in its wake a trail of clueless investors who have been cheated. Rules have been bent to achieve the goals.

At times, a stock is pushed to the defaulters` counter, which puts pressure on its price. After that the share is moved back to the regular counter on some pretext so that investors not in the knowledge of what might come next fall over one another to be the first to buy which propels the share price sky high. The stock is then directly suspended without even a single day`s placement on the defaulters` counter, trapping investors in that stock and wiping out all their investment.

The country`s stock exchange set up the defaulters counter back in August 1997, on which companies with a bad track record were relegated. But investors could still trade in those securities. It was after a couple of years when delinquent firms failed to rectify their defaults that they received suspension orders. Currently, 125 companies are languishing on the default-ers` counter while around 85 firms have been suspended.

The regulation 5.11 of the PSX`s rule book deals with de-listing, suspension and defaulters` segment. The rule stipulates that a listed company may be placed in the defaulters` segment for any of the following reasons: if from three years of the date of formal listing, it has not started commercial production; if a company has failed to hold its annual general meeting for two consecutive years; a company in which winding-up proceedings have started; and a listed company that has failed to pay the annual listing fees of the stock exchange.

The last is the least reasonable failure to pay the stock exchange listing fees, which anyway amounts to less than a million rupees. Why must shareholder suffer in the regulatory tussle between the bourse and the company? In order to protect the savings of small investors, there is an urgent need to open up a risk-alert counter where companies failing to comply with regulations should be placed so that investors are aware that those companies could be thrown on the defaulters` counter at any time and later suspended.

Comparison with the eternal foe may be disliked, but at the Mumbai Stock Exchange, before suspending companies that are non-compliant, adequate notice is given to the market through media releases and advertisements. •