ICMA proposes Defence Index to safeguard PSX from future crises

The Institute of Cost and Management Accountants of Pakistan (ICMA) has launched a sweeping initiative to fortify the Pakistan Stock Exchange (PSX) against future crises, unveiling a four-point “Defence Framework” designed to protect market stability during wars, geopolitical tensions, and national emergencies.

Developed by ICMA’s Research and Publications Department, the framework was announced in response to vulnerabilities exposed during the April–May 2025 border conflict, when the PSX experienced sharper losses than India’s National Stock Exchange, according to the statement recieved from ICMA on Tuesday. While Pakistan’s markets dipped, India’s Defence Sector Index rose nearly 9%, highlighting the role of strategic industries in stabilizing markets and exposing the lack of similar safeguards in Pakistan.

At the core of ICMA’s framework is a proposal to establish a dedicated Defence Sector Index on the PSX, modeled after similar indices in countries such as India, the U.S., Germany, and Japan. These indices typically represent about 2% of total market capitalization and have proven effective in reducing volatility during geopolitical shocks. According to ICMA, a similar index in Pakistan would attract investment to strategic sectors and send a strong signal of economic resilience.

The second pillar of the framework calls for the restructuring of PSX’s circuit breaker rules. ICMA recommended adopting a level-based system—similar to that used by the New York Stock Exchange—where trading is temporarily halted at market drops of 4%, 8%, and 12%. The staged approach is intended to curb panic selling and enhance market transparency during periods of extreme volatility.

ICMA’s third proposal is the creation of a Sovereign Market Stability Fund, backed by the federal government and co-managed by the Ministry of Finance and the Securities and Exchange Commission of Pakistan (SECP). Drawing inspiration from South Korea’s 2020 Market Stabilization Fund, the initiative would provide emergency liquidity, buy shares, or offer guarantees to stabilize the market in times of crisis.

The final measure in the Defence Framework emphasizes greater transparency. ICMA urged the SECP to mandate crisis-risk disclosures from all listed companies, including assessments of geopolitical threats and business continuity plans. Similar rules introduced by the UK’s Financial Conduct Authority have been credited with increasing investor trust and market resilience.

“The need for urgent reforms has never been clearer,” ICMA said in a statement, calling on the Government of Pakistan, the Ministry of Finance, the Ministry of Defence, SECP, and PSX leadership to act swiftly. “In today’s unpredictable environment, hesitation is costly. Pakistan must ensure its stock market is not a casualty of crisis but a shield of strength for the national economy.”

The Defence Framework, ICMA says, presents a globally aligned blueprint to protect investors, reduce volatility, and reinforce the PSX’s role as a cornerstone of economic stability.