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The bold role of SECP in capital market development

The Securities and Exchange Commission of Pakistan (SECP) has taken an aggressive lead in strengthening the regulatory framework that protects investors’ interest. It is launching a program to broaden the reach of the capital market investment products to savers across the nation. It is accelerating regulatory approvals for listing of new companies, launching of new products such as REITS (Real Estate Investment Trusts) and Government Debt Securities secondary market trading.

SECP has taken a lead in pushing forward with the launch of Small & Medium Enterprise (SME) segments, said an official talking to his scribe. It was disclosed that after SECP approved SME regulations for the Islamabad Stock Exchange in 2014 and now recently it approved SME regulations for the Karachi Stock Exchange. These initiatives will lead to a quantum increase in opportunity for small and medium businesses, which account for 90 percent employment generation in the country, to obtain funding for growth.

SECP, in February 2015 has set up an Investor Awareness Generation Committee to create Capital Market Hubs in small cities such as Abbotabad and Sialkot to start with. All the three stock exchanges, Central Depository Company of Pakistan (CDC), National Clearing Company of Pakistan (NCCPL) and major asset management companies are actively involved in this project.

Some constituencies of the capital market have recently expressed concern regarding lack of support for the smaller stock exchanges that comprise less than 10 percent of trading activity and value in the overall capital market equation in Pakistan. As far as narrow investor base in concerned, the problem is not limited to smaller exchanges. It is a national capital market issue. There is an uneven playing field which is a major impediment to the growth and development of the capital market in Pakistan.

This relates to the national savings schemes (NSS) where not only guaranteed returns are higher than government bonds. There is relatively lower level of formalities to open an account versus the stringent KYC regime capital market participants/institutions operate under.

Allowing institutions to invest in NSS diverts savings away from the capital market and is a drag on its capacity to serve the long term funding needs of industry and commerce.

SECP has taken a serious initiative to address the liquidity issue in the smaller exchanges. Several months ago the SECP formed a high level task force to explore ways in which greater liquidity could be generated at the smaller exchanges without compromising on risk management and broaden investor interest. It is incorrect to say that smaller exchanges are being ignored. The SECP is actually putting the larger exchange (KSE) under far greater and more stringent scrutiny simply because of larger transaction values generated there.

Securities and Exchange Commission of Pakistan (SECP) has emphasized upon the need for implementing reforms for investor protection in a timely manner. It has advised the Exchange Companies to expedite sale of assets of defaulting brokers and put in all efforts for early resolution of pending litigation in order to ensure that all pending claims of investors are satisfied in a speedy manner, in particular small investors.

It also advised Pakistan Stock Exchange (PSX) to provide fortnightly update on all pending cases to the commission. PSX was further directed to expedite implementation of the regulations relating to standardization of brokers’ back office software. SECP stressed upon PSX to introduce rigid requirements for opening and operating branch offices by brokers and for strict monitoring of such branch offices for regulatory compliance. This is to ensure investor protection and discourage brokers from circumventing regulatory requirements.

SECP expressed concern over some single member companies acting as stockbrokers. It directed the Exchange to ensure all such brokers convert to a private or public company within specified time period.

The PSX board shared findings and recommendations of an internal inquiry into the recent broker default and role of the Chief Regulatory Officer (CRO) of the Exchange in timely detection and reporting of the same.

In order to strengthen the Exchange’s capacity as a frontline regulator, PSX agreed to put in place a stronger inspection regime for brokers, and on the need to establish a national level brokers’ association as a self-regulatory organization under the Securities and Exchange Commission of Pakistan Act, 1997.

The Securities and Exchange Commission of Pakistan (SECP) on clarified that it did not in any manner intend to regulate the real estate business. Its focus was to ensure that the companies registered with it having real estate as their principal line of business, operate under certain rules and regulations in order that they gain confidence of the public.

SECP clarified that the provision relating to companies’ real estate projects in the draft Companies Bill, 2016, is restricted to the companies which run real estate as their principal business after obtaining the necessary NOC (no-objection certificate) from the relevant local authorities.

The intent and purpose of the entire scheme, it said, was to provide increased investors’ confidence in the real estate schemes launched by the companies by providing complete mechanism for maintaining proper accounts and approval of the authorities.

To another report, Finance Minister, Senator Mohammad Ishaq Dar urged Securities and Exchange Commission of Pakistan (SECP) to take all necessary measures to ensure that the corporate sector and capital markets of the country realize their full potential through adoption of international best practices. This would enable the country to achieve higher, inclusive and sustainable economic growth, which is the main aim of the present government after having achieved macroeconomic stability.

He said that the thirty three-years old Companies Ordinance 1984 required revamping in order to provide a modern legislative framework to the corporate sector of Pakistan, which addresses the needs of the corporate sector. He said that the Bill has been developed based on extensive consultations and inputs from all stakeholders. The Finance Minister also said that the present government fully supports SECP’s efforts for facilitation and effective regulation of capital markets.

In order to promote the Islamic capital market and facilitate review of the Pakistan Stock Exchange (PSX)’s All Shares Islamic Index (ASII), the Securities and Exchange Commission of Pakistan (SECP) has issued Circular No. 14 of 2016. The circular requires listed companies to disclose in their annual and half-yearly accounts, certain specific information in terms of Shariah compliance or otherwise to facilitate the PSX in fairly maintaining its newly developed the ASII.

The disclosures to be made under the circular include disclosure of loans, advances, deposits, revenue, profits, gains, income, losses, bank balances etc. separately based on Shariah-compliant mode and conventional mode.

The Securities and Exchange Commission of Pakistan (SECP) has issued circular in order to promote the Islamic capital market and facilitate review of the Pakistan Stock Exchange’s All Shares Islamic Index (ASII).

The circular requires listed companies to disclose in their annual and half-yearly accounts, certain specific information in terms of Shariah compliance or otherwise to facilitate the PSX in fairly maintaining its newly developed the ASII.

The disclosures to be made under the circular include disclosure of loans, advances, deposits, revenue, profits, gains, income, losses, bank balances etc. separately based on Shariah-compliant mode and conventional mode.

The ASII has been developed to use it as a benchmark to measure the price performance of investments in Shariah-compliant shares. It comprises all listed companies that are Shariah-compliant as per the Shariah and technical screening criteria of PSX. At present, 238 listed companies are included in the said index.

The PSX will review the index on a semi-annual basis.

Earlier, Ishaq Dar, the Finance Minister, had constituted a steering committee for development of Islamic banking and finance. The committee comprised of senior officers from the State Bank, SECP, capital market and banking sector’s experts, Shariah scholars and businessmen.

In order to facilitate and encourage investors and fund managers looking for Shariah-compliant investment avenues, the committee recommended development of the ASII. The index was launched by the honorable Finance Minister on November 19, 2015. This SECP’s initiative is another step towards the development of Islamic capital market. It is expected that the disclosures shall facilitate the PSX in periodical review of the ASII.

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