Monopoly Fostered by Regulation: the case of Pakistan Stock Market

Purpose The paper discusses the lack of competition in the securities market of Pakistan, after delicensing of Lahore and Islamabad stock exchanges leading to lower than the potential growth of the overall securities market. Design/methodology/approach A number of indicators of stock market activity are analyzed during the period 2000–2023 with an extensive literature review. Findings The trends in securities market activity indicate that trading activity was dominated by the Karachi stock exchange (KSE) while all exchanges were functioning. The trends also show that after the delicensing the stock market did not experience significant growth as is expected of a stock exchange merger. In fact, the market was stagnant due to the lack of competition and no positive outcome is noticed after the delicensing of Lahore and Islamabad stock exchanges. Research limitations/implications The analysis in this study relies on secondary information gathered from publicly available reports including anecdotal information and numerical data. These data may not have captured the extent of existing informal relations between brokers and regulatory authorities. This study therefore is limited in its inability to include any primary data including interviews and surveys. Also, the conclusion drawn in this study of Pakistani context may not be applicable for other emerging securities market with different market dynamics. Another limitation is that the post 2023 period analysis may offer more and latest insights into the effects of demutualization on Pakistan’s stock market. The future research may address these limitations and conduct interviews and surveys to get a deeper vision of the problematic area. Originality/value This is the first study that acknowledges a July 2001 report of the Securities Exchange Commission Pakistan which mentions that stock brokers in Pakistan act as principals rather than as intermediaries and this had undermined the stock market’s ability to raise capital and dampened the market’s potential for investment activity. The other noticeable structural impediment for the market as a whole to realize its latent capacity has been the abuse of dominance by the major stock exchange, KSE and its affiliated stock brokers. Resting on an extensive literature review about the behavioral dynamics of securities markets, this paper discusses abuse of dominance that discouraged trading on platforms of the Lahore and Islamabad stock exchanges. We conclude by providing suggestions with specific policy implications for the Securities and Exchange Commission Pakistan to consider in order to enhance the growth in stock market trading activity.