January 27, 2021: Securities and Exchange Commission of Pakistan (SECP) has made significant capital market reforms featuring legal, structural, regulatory, operational and product development initiatives which were helping in the development of a robust and transparent capital market in the country
“In order to enhance the security of investor's assets with the securities brokers and strengthen the overall brokerage industry, a framework for a new regulatory regime has been introduced involving categorization of securities brokers according to their financial resources and governance standards,” says the annual report of SECP.
Securities brokers that would comply with enhanced net worth, corporate governance and compliance requirements shall be allowed to retain custody of investor assets. Small-sized brokerage houses shall not be maintaining custody of customer assets and therefore will be subject to less stringent regulatory requirements.
This would enable such brokerage houses to operate at lower costs and accordingly focus on their core competence of trading and investment advice and aid in expanding market outreach.
The minimum and maximum range of brokerage commissions have been implemented for ensuring the quality of brokerage service provided by securities brokers, reducing anomalies and supporting the growth of the brokerage industry. In this regard, a minimum brokerage commission of 3 paisa per share or 0.15% of the traded value, whichever is higher, has been made effective along with a maximum allowable commission rate of 2.5% of the traded value, the report said.
PSX has successfully launched two Exchange-Traded Funds (ETF), which will uplift the investor base in the capital market by providing a new, low cost and well-diversified investment avenue for the investors.
Further, in order to promote Shariah-Compliant financing, Murabaha Share Financing (MSF) product has been introduced, which is a counterparty risk-based financing product in KMI-All Shares Index.
With the launch of this platform by the National Clearing Company of Pakistan Limited (NCCPL), securities brokers, banks and financial institutions shall be able to extend share financing in a Shariah-compliant manner.
SECP in collaboration with the PSX has introduced an alternative board, the Growth Enterprise Market (GEM) to encourage smaller companies to list equity securities and avail the benefits of listing at the exchange.
In order for a public company to be eligible to list at GEM, it should have audited accounts for the last 2 years and post-issue paid-up capital of a minimum of Rs25 million. The issuer may offer, by way of an information memorandum, 10% of the post-issue paid-up capital to eligible investors.
For enhancing the ease of doing business and strengthening market participants, measures have been taken to reduce market costs for which the fee structure of the PSX, CDC, and NCCPL have been rationalized.
In order to enhance investor outreach, a framework has been stipulated for enabling online account opening.
Further, to increase the retail base, a simplified account opening process has been introduced for low-risk investors whereby the maximum investment limit of the Sahulat Account has been enhanced from Rs500,000 to Rs800,000. Further, a simplified non-trading Investor Account has been introduced for sales/income tax refund bonds, IPO facilitation, and mandatory induction of private/public unlisted company shares in CDS.
Various measures were taken to enhance activity in the DFM segment, such as permitting the release of 50% MtM profit in the DFC market on a T+l basis and inclusion of a closeout mechanism in the DFC market for managing risk. Further, amendments in the PSX Regulations were approved relating to reporting of blank selling in DFM to address practical difficulties being faced by the market participants.
Further, basic deposit collected by NCCPL from brokers trading in the DFM has been permitted to be used towards margin requirements of brokers with NCCPL.
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