S.KAMAL HAYDER KAZMI,
Research Analyst, PAGE
May 28 - June 3, 2012
The Securities and Exchange Commission of Pakistan (SECP) is the financial regulatory agency in Pakistan. Its objectives are to develop a modern and efficient corporate sector and a capital market based on sound regulatory principles in order to foster economic growth and prosperity.
It was set up in pursuance of the Securities and Exchange Commission of Pakistan Act, 1997. It became operational in January 1999 and has come a long way since then.
Over time, its mandate has expanded to include supervision and regulation of insurance companies, non-banking finance companies, and private pensions
The SECP has also been entrusted with oversight of various external service providers to the corporate and financial sectors, including chartered accountants, credit rating agencies, corporate secretaries, brokers, surveyors etc. Presently, the SECP has announced that the exemption under provisions related to capital gains tax (CGT) for the stock market investment is not available for income derived from a criminal activity under any other law for the time being in force.
Strategy, Development, Legislation and External Relations Department (SDLERD) provides strategic analysis on internal and external matters related to the SECP, conducts research to frame policies and procedures for the growth and development of non-banking financial markets and preparation of all draft laws and regulations for the commission.
It has been mandated to prepare roadmaps, in light of international best regulatory and market practices, and in consultation with stakeholders, for the development of debt market, derivatives market, commodities and currency exchange, mutual funds, non-banking financial sector including modaraba sector, insurance and equity market.
In addition, SDLER is the focal point for multilateral agencies, international and local regulatory bodies, implementation of regulatory standards, AML regime, federal and provincial governments, local standard setting bodies, and investor education and complaints.
The IS&T department's role at the commission is to provide information technology leadership to build the commission's information infrastructure and effectively participate in making it a modern and efficient regulator. The department strives to expand technology support to create the information technology environment that the commission needs in order to achieve its objectives.
The IS&T department of the commission has come a long way from a humble beginning. The division now provides a host of services ranging from various management support functions, design, and development of specialized applications as well as IS applications and managed services.
Furthermore, the department enjoys a world class repute in the IT industry at national and international level and has won several distinctions over the years including the sword of cyber defense, top five website ranking, first RAC installation, first SOA based implementation and most recently won laureate gold medal on envisaging and developing eServices for the commission in the computer world laureate honors program 2011.
Today in Pakistan, capital markets are going through one of the toughest periods ever, as market capitalization has come down to $31.9 billion, less than half of what it was three years ago. Turnover, in the backdrop of market closure in 2008 and imposition of capital gain tax, is less than 10 per cent of what it was six years ago and new listings from good quality corporate houses remain undersubscribed. There are less than 200,000 registered investors in the capital market of whom a large number are inactive, and there are less than 150,000 unit holders in the mutual fund industry.
Insurance penetration, at 0.7 per cent, is one of the lowest in the world. Private pension investors are less than 2,000 while investment banking, housing finance and leasing sectors are struggling for survival. In comparison with regional economies, market capitalization as a percentage of GDP is only 20.34 per cent compared to 41 per cent in Sri Lanka, 44 per cent in China, 84 per cent in Thailand, 94 per cent in India and 185 per cent in Malaysia.
A similar state of affairs exists in the corporate sector of Pakistan. As of June 30, 2011, there were 59,417 incorporated companies of which 20 per cent are inactive. Pakistan's fiscal structure is not conducive to corporatization since income tax rates are higher for companies in comparison to other business structures like partnerships or proprietorships.
This, coupled with a presumptive tax regime and various tax exemptions, discourages documentation and the general culture of corporatization in trading, industrial and agriculture sectors.
Pakistan's capital markets offer transparency, best price, and efficient execution coupled with attraction for foreigners as equity market trades at discount as compared to regional valuations. Based on PE (price earning), PBV (price by volume) and payout, the Pakistani capital markets trades at lower levels as compared to regional markets.
The SECP strives to maintain fair, orderly and efficient markets. It protects the rights of investors, facilitates capital formation, and develops an efficient and dynamic regulatory framework in line with the principles of the international organization of securities commissions (IOSCO).
It was highlighted that after the 2008 stock market crash (when the index fell from 15,500 to 4,500 points), due to successful reform process led by the SECP the index has successfully recovered by almost 200 per cent. With the recent developments on the regulatory and operational front and future roadmap, the Pakistani capital market will be comparable with developed international jurisdictions that meet the IOSCO benchmarks.