ISLAMABAD: The government seems to be withdrawing from the capital market reforms for demutualisation of stock exchanges as it has sought two more years for ending the monopoly of powerful brokers.

At a meeting of the Senate Standing Committee on Finance and Revenue, presided over by Saleem H Mandviwala, the finance ministry sought protection of expensive membership cards of the brokers until Dec 31, 2017, while these should have diluted on June 30, 2010, and completely abolished in 2019.

Through an amendment in the Stock Exchanges (Corporatisation, Demutualisation and Integration) Bill, the finance ministry said the trading right entitlement certificates — previously known as stockbroker’s membership cards — should be protected until December 2017 by restricting the proposed strategic partners of the bourses and not to issue more than 15 such certificates a year for nine years, and then enabling free trading of these rights after December 2026.

Senator Talha Mahmood of the JUI-F highlighted that the finance ministry was trying to favour the existing brokers, and alleged ‘mala fide’ intentions in it.

The SECP Chairman Zafar Hijazi and Commissioner of Securities Division were of the view that there was no need to extend the deadline beyond 2015. “The purpose of issuing new TRE certificates is to open avenues for new players,” Hijazi said.

The Senate Standing Committee finally deferred the approval of the Bill, and directed the law ministry to vet the proposed bill before it is taken up for voting.

Akif Saeed, Commissioner, Securities Division of the SECP, said that in order to get brokers’ support, the SECP had entered into an agreement with them under which new certificates cannot be issued for three-and-a-half years after the enactment of Corporatisation, Demutualisation and Integration of Stock Exchanges Act of 2012.

He said this deadline would expire in December 2015. However, at the time of enactment apparently a loophole was left for exploitation in the future.

He said that due to “drafting error” instead of writing “three-and-a-half years after the enactment of law,” June 30, 2010, deadline was inserted in the Act. The SECP sought correction and proposed that June 30, 2010, should be replaced with December 2015.

However, Finance Secretary Dr Waqar Masood sought that the fresh deadline should be set at Dec 31, 2017, and insisted that it would not give benefit to any specific group — a view that was not endorsed by the SECP and was suspected by senators Talha Mahmood, Kamil Ali Agha and Mandviwala.

“There is no rationale for extending the deadline as extension would benefit the existing brokers,” said Mr Kamil. His views were endorsed by the SECP officials. The existing players were working against the interests of small investors, added the senator.

Another SECP official disclosed that the commission had originally proposed “three-and-a-half years, but the wording was changed to December 2017 by the law ministry.”

Published in Dawn, July 29th, 2015

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