July 6, 2020: The Securities and Exchange Commission of Pakistan (SECP) has issued draft Professional Clearing Members (PCM) Regulations, 2020 for public consultation.
Professional clearing members denotes the concept of a third party independent institution, which will offer custodial and clearing/ settlement services to securities brokers and their customers. PCM can be a financial institution, such as a commercial bank, Non-Banking Finance Company etc., or a specialized entity formed for this purpose. PCM will handle the custody and clearing/ settlement functions for brokers that will significantly reduce compliance burden, ensure efficiency in businesses and allow brokers to focus on their key competencies. The new regulations will evolve a new business model, which will support ease of doing business, and reduce operational costs.
The draft PCM Regulations lay down licensing, conduct and operational requirements for PCM which include eligibility criteria, development of important policies and procedures, measures for ensuring customer asset protection and segregation, confidentiality of customer information and compliance with corporate governance requirements etc.
Earlier, SECP had introduced the concept of categorization of securities brokers and segregation of trading and custodial/ settlement functions, whereby only those brokers which fulfill the eligibility criteria can offer custodial/ clearing services. As per the new model, Trading Only brokers can transfer their custody/clearing services to brokers which meet significantly higher eligibility criteria and licensed as Trading and Clearing brokers.
PCM framework is a crucial milestone in implementing the new broker regime and introducing international best practices. It will mitigate the market risk and further strengthen the custody protection measures to safeguard interest of the investors.