SECP orders phased adoption of shariah-compliant trading mechanism

September 01, 2025 (MLN) : The Securities and Exchange Commission of Pakistan (SECP) has directed its licensed entities to adopt concrete measures for facilitating the growth of Shariah-compliant intermediary services, in line with the constitutional mandate to gradually eliminate riba from the financial sector.

Under the new directive, Shariah-compliant institutional investors within SECP’s regulatory domain are now required to route their securities trading transactions through Shariah-compliant securities brokers in a phased manner.

This mandate applies to takaful operators, window takaful operators, and other Shariah-compliant licensed entities, including non-banking finance companies, collective investment schemes, voluntary pension schemes, modarabas, modaraba management companies, private funds, and securities brokers.

In the first phase, these institutional investors must formulate an internal policy by December 31, 2025, and begin quarterly reporting of their progress, along with any implementation challenges, starting March 31, 2026. By June 30, 2026, each entity must include at least one Shariah-compliant securities broker in its approved panel.

The second phase, spanning July 1, 2026, to June 30, 2027, requires these investors to route at least 20 percent of their securities trading business through Shariah-compliant securities broker(s).

Upon completion of this phase, SECP will determine the future course of action based on both entity-wise and sector-wide progress.

Additionally, Shariah-compliant licensed entities have been strongly encouraged to switch to takaful for insurance coverage and utilize Shariah-compliant asset management services for investment purposes.

The SECP has also advised the Pakistan Stock Exchange (PSX) to ensure timely development of a Shariah-compliant trading mechanism and enhance awareness of Shariah-compliant brokerage services.

 The Exchange has been directed to coordinate with Trading Rights Entitlement (TRE) Certificate Holders to offer such services either through outright conversion, creation of a subsidiary, or establishment of window operations.

Meanwhile, the Central Depository Company (CDC) has been tasked with enhancing visibility for Shariah-compliant intermediaries by creating a dedicated category on Asaan Connect, Emlaak Financials, and the digital applications of Islamic banks, in coordination with the State Bank of Pakistan (SBP).

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