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ISLAMABAD, Feb 17: The Securities and Exchange Commission of Pakistan announced here on Tuesday the long-awaited first step towards demutualization and integration of stock exchanges by establishing a seven-member Experts Committee to formulate a comprehensive plan for that purpose.
The committee, to be headed by former Corporate Law Authority chairman Shamim Ahmed Khan, comprises national and international securities market experts and will submit its recommendations within 120 days or June 15, whichever is earlier.
Before that, it has to submit an interim report within 60 days of its first meeting.
Other members of the committee are: Justice (retd) Aamer Raza A. Khan; Ebrahim Sidat, a chartered accountant; Rashid Zahir, CEO of Saudi Pak Industrial and Agricultural Investment Company and chairman of Saudi Pak Leasing Company; Mr Alan, former chairman, Australian Securities and Investments Commission; Dr Philip N. Pillai, a lawyer and non-executive director, Monetary Authority of Singapore; and Ashley Alder, executive director, Securities and Futures Commission, Hong Kong.
The objective, SEC chairman Dr Tariq Hassan stated at a news conference, was to keep pace with international trends in the context of national development needs.
Starting in the early 1990s, he recalled, the Stockholm Stock Exchange became the first bourse to demutualize. Out of 52 stock exchanges that are members of the World Federation of the Exchanges, as many as 44 have either already demutualized or are in the process of doing so.
The SECP chief justified demutualizations on the following grounds:
* Improved governance on account of separation of management from ownership, separation of ownership from trading rights and clear roles and responsibilities of owners, management, and users (such as brokers, agents and issuers, etc.);
* Greater transparency and fairness through enhanced corporate regulation and through equitable allocation of cost of regulation across different market participants;
* Opportunity for enhancement of resources through increased capitalization and greater market access;
* Expansion of investment/ trading activity on account of increased investment in technology because of enhanced resources and greater confidence of investor, issuers and regulator on account of improved governance;
* Cost efficiency on account of conversion into profit organization.
* Enhanced risk management on account of greater management responsibility; and
* Increased investment opportunity for the public through opportunity for non-trading institutional and retail investors to invest in the stock exchange.
The mandate of the Expert Committee would be:
DEMUTUALIZATION: To review and examine the present structure of stock exchanges in Pakistan and in that context examine the legal, regulatory and financial issues involved in the demutualization of stock exchanges.
INTEGRATION/TRANSFORMATION: To advise on the consolidation/merger and/or transformation of the stock exchanges in Pakistan to examine the legal, regulatory and financial issues in respect thereof.
RECOMMENDATIONS/ IMPLEMENTATION: To provide specific recommendations regarding demutualization, integration and/or transformation of the stock exchanges in Pakistan and formulate a plan of action for implementation of the same.
The SECP, its chairman said, looked forward to the committee's recommendations regarding the appropriate models of demutualized exchanges and mode of consolidation of the Pakistani bourses after taking into account international standards and best practices and peculiarities of the stock market in this country.
The final decision, he further stated, would be made in consultation with all stakeholders, taking into account their legitimate interests.
His response to questions indicated that the exercise might not necessarily lead to the establishment of a single national stock exchange. As evident from terms of reference of the Experts Committee, they would go into both questions as to the amalgamation or simple conversion of existing bourses as guaranteed, non-profit organizations into profit-making entities.
