ISLAMABAD: The Competition Commission of Pakistan (CCP) on Monday approved the merger of three exchanges into Pakistan Stock Exchange (PSE) with the condition that PSE will carry out the divestment of 40 per cent of its shares to a strategic investor within one year of the date of integration.

The CCP has also said that the sale of 20pc PSE shares to the public will also be carried out within the timelines specified, and that more than 50pc of the directors on the board shall be independent and nominated/approved by the SECP.

Besides, the commission has stipulated that PSE will establish an SME counter within one year to facilitate smaller new companies to list on the exchange.

Also read: ‘Merger to boost stock market’

The CCP issued the detailed Phase II Review order, approving the merger while imposing conditions to remedy certain competition concerns.

The CCP has undertaken a comprehensive competitive analysis of the merger to determine if it substantially lessens competition by creating or strengthening a dominant position.

The order provides that the market under scrutiny is the ‘trading platform for the sale, purchase and exchange of listed securities’. It further elaborates that an integral subset of this market is the broker-to-broker interaction.

The commission has taken a two-pronged approach to consider both the horizontal and vertical effects of the merger.

With respect to the vertical effects, the CCP has held that until the divestment of 40pc shares to a strategic investor is carried out, the brokers transferring from Lahore and Islamabad stock exchanges remain vulnerable to biased treatment at the hands of KSE shareholders.

Another concern was the effect the merger might have on Central Depository Company and National Clearing Company Pakistan Limited. With respect to horizontal effects, the commission has found that the integration will not lead to elimination of an important or effective competitor from the market.

The order stated that the unification of trading on one platform will instead improve the liquidity of the markets as a whole.

The order also said that the companies listed on the LSE and ISE will be deemed listed on PSE upon its creation, without any additional cost or regulatory requirements which would create efficiencies. With regards to listing of new companies, the commission observed that the SECP remains responsible to ensure listing fees are not set arbitrarily and to review any instances of unfair refusal.

The order was issued by a bench comprised of CCP Chairperson Vadiyya Khalil, Member (Mergers and Acquisitions) Mueen Batlay, Member (OFT and Advocacy) Shahzad Ansar and Member (Cartels and Trade Abuse, and Legal) Ikram Ul Haque Qureshi.

Published in Dawn, December 1st, 2015