16 October 2004	Saturday	01 Ramazan 1425

ISLAMABAD, Oct 15: The expert committee on the demutualization and integration of stock exchange has submitted its report to the Securities and Exchange Commission of Pakistan (SECP) proposing models of Fully Integrated Demutualized Exchange (FIDE) and National Exchange, one of which should be implemented.

Officials of the SECP and chairmen and managing directors of the stock exchanges of Karachi, Lahore and Islamabad also held a meeting here on Friday to review and discuss the report.

The committee also decided that any decision on the adoption/implementation of either of the two models would be determined after consultation with the stakeholders.

According to the FIDE model, the three stock exchanges should merge into a single FIDE. The Central Depository Company of Pakistan Limited (CDC), National Clearing Company of Pakistan Private Limited (NCC) and the National Commodity Exchange Limited (NCEL) shall become subsidiaries of the FIDE.

As an alternative to the Fully Integrated Demutualized Exchange model, if sufficient progress was not made towards demutualization and integration in one year, a New National Security Exchange (NewSE), sponsored by financial institutions, shall start its operation as a National Exchange.

The National Exchange would have the economic and human capital and the desired governance structure to emerge as a "truly national securities exchange in Pakistan and address the problems of the market."

The report also suggests that after three years, the SECP should observe the desirability and feasibility of each exchange. If, an exchange is found unable to effectively serve the investors interests, its registration should be cancelled.

Further, the report of the Expert Committee gives a detailed assessment of the present capital market conditions, specifically identifying the issues/flaws inherent in the existing structures of our stock exchanges. It provides an in-depth rationale for integration and demutualization of the stock exchanges.

Moreover, the report provides guidance on the significant features of the envisaged demutualized exchange paradigm such as legal mode and sequencing, the process of demutualization, integration and listing, the structure of the board of directors, encouragement of electronic communication networks (ECNs), etc.

As part of the capital market reform process, the Securities and Exchange Commission of Pakistan, on February 17, this year, had constituted the expert committee to formulate a comprehensive plan for demutualization and integration of stock exchanges in the country.

The committee comprised national and international securities market experts including Justice (Rtd) Aamer Raza A Khan, Ibrahim Sidat, Rashid Zahir, Alan Cameron, Dr Philip N Pillai and Ashley Alder. Shamim Ahmed Khan was the chairman of the committee.

The committee was required to examine the feasibility of the integration of stock exchanges and to provide specific recommendations on demutualization of exchanges such as, an appropriate model/structure for the demutualization of exchanges.