The objective of any securities institute is to raise professional standards, but the scope of their activities varies. Here, a securities institute should be used: (a) for conducting certification examinations for stock market intermediaries; (b) for providing an opportunity for investors to learn about securities markets and (c) for working as a think tank on securities market issues
THE structure, products, and practices in the capital market can be only as good as the people working in the market. There is a broad consensus in our market that we need to increase awareness among investors about capital market opportunities and issues and also raise professional standards among brokers, fund managers, analysts, staff of exchanges, and staff of Securities and Exchange Commission of Pakistan (SECP).
At times some efforts are made towards this end, such as holding seminars, publishing investor guides, conducting road shows etc. All such efforts are welcome but they are not enough. Given the enormity of the task and its never-ending nature, what is required is a dedicated securities institute.
Securities institutes are found in capital markets of both developed and developing countries, such as USA, UK, Canada, Australia, Holland, South Africa, Hong Kong, Thailand etc. There are others who are in the process of setting up a securities institute. For instance, the Securities and Exchange Board of India is working on an ambitious National Institute of Securities Markets.
The overriding objective of any securities institute is to raise professional standards, but the scope of their activities varies. Here, a securities institute should be used for three purposes: (a) for conducting certification examinations for stock market intermediaries, traders, agents, brokers, fund managers, analysts etc; (b) for providing an opportunity for investors to learn about securities markets and (c) for working as a think tank on securities market issues, including securities laws and market products and services.
The institute should preferably be a joint effort of SECP, stock exchanges, and institutional investors. Since objectives of the institute are not commercial in nature, it should be a not-for-profit public limited company. To provide it greater credibility, it should be set up in collaboration with a reputable international securities institute.
This initiative may be met with some cynicism because in the past some new institutions were set up with much fanfare but did not live up to the expectations. Therefore, doubts may be cast about the usefulness of adding another organization in the capital market. To gain the confidence of market participants, the institute would have to be carefully structured to address potential concerns. In this regard, following factors will be critical to the success of the institute.
First, it should be managed by top of the line professionals who are capable of raising the standards in the market. That is, mediocrity must be kept away to avoid failure. If the institute can pay market-based compensation and provide an opportunity to make a difference, it should be able to attract and retain the best.
At the same time, the management team should be lean, as the institute could hire the services of experts from local as well as foreign markets whenever required.
Second, institute should have secure funding, both initial and ongoing. Perhaps, stock exchanges should provide a certain fraction of traded value to the institute, which would spread the financing burden over all market participants, be it brokers or investors. The penalties levied by SECP and stock exchanges on violation of securities laws should also be passed to this institute. This will also resolve the conflict of interest caused by retention of penalties by the penalizing authority. Moreover, the institute should be able to charge a reasonable fee for its services, be it certification exams or seminars.
Third, the institute should have complete operational independence. It should have its own office space, its own staff, and its own resources. Its shareholder base should also be adequately diversified so that it is not unduly influenced by any particular class of stakeholder. The board of directors should set the policies and the goals and hold the management accountable, but no one should be able to interfere in day to day workings of the institute.
Fourth, certification examinations conducted by the institute ought to be mandatory for licensing market intermediaries. These certifications should not be academic but practical and market driven. Only those who qualify specified exams should be allowed to perform the desired function.
Since new developments keep taking place in the capital market, a one time certification would not be enough. Certification should be subject to expiry or there should be a requirement for continuing education. What an examination should test should be set after consultation with the market participants but no compromise ought to be made on standards.
Fifth, institute should be able to reach out to the intermediaries and investors through out the country. It should not be a conventional university where prospective students must come to a certain geographical location.
Given that we have three independent stock exchanges located in three different cities, the institute would need to carry out its activities across cities to fulfil its purpose. To increase its reach, it should intensively use informational technology and make strategic alliance with business channels and newspapers to further its objectives.
We need not remind ourselves that the markets which are more developed than ours have a clear advantage over us in human capital. Simply put, they have more sophisticated investors, intermediaries, and regulators.
In order to move forward at a faster pace, it is essential that we invest in enhancing our human capital and a securities institute is an internationally recognized way of doing that.
