On the first day of trading after the Eid holidays, the Pakistan Stock Exchange will start to trade on itself. This would be the first such development through South Asian equity markets.

An Analogy cannot be drawn with the listing of the Bombay Stock Exchange earlier in February this year, for the reason that the BSE was listed, but on the second stock exchange on Dalal Street in Mumbai — the National Stock Exchange (NSE).

The opening price of the share in PSX would be Rs28 against its par value of Rs10, as determined through the book building process.

Shehzad Chamdia, chairman, divestment committee of the Pakistan Stock Exchange (PSX) told this writer last Friday that the Committee was able to complete the entire task of divestment of the PSX within the time frame of six months to June 30, stipulated by the apex regulator, the Securities and Exchange Commission of Pakistan.

With the completion of the divestment process, the ownership of the PSX has been effectively separated from the management

In January, the PSX formally signed a sale-purchase agreement for the sale of 40pc or 320 million strategic shares with a Chinese consortium that made the highest bid. The value of the transaction was calculated to be Rs8.96 billion ($85m).

The Chinese consortium comprised three Chinese exchanges — the China Financial Futures Exchange Company Limited (lead bidder), the Shanghai Stock Exchange and the Shenzhen Stock Exchange.

Together they acquired 30pc of the strategic stock while two local financial institutions — Pak-China Investment Company Limited and Habib Bank Limited — picked up 5pc shares each.

With 40pc of the PSX equity already vested with the 200-strong stockbroker fraternity, the remaining 20pc was offered early this month under the book building process and an initial public offering (IPO) to the general public.

With the completion of the divestment process the ownership of the PSX has been effectively separated from the management which would result in reduced conflict of interest and strengthening of governance.

The broad-based ownership of the PSX would also reduce the risk of cornering scrips and help price discovery of the Exchange.

The divestment to Chinese investors has created opportunities for technology transfer. “The Shanghai Stock Exchange — a member of the Chinese consortium — has already introduced state-of-the-art technology which prevents information leakage as was sometimes seen in the past”, confided an official of the PSX.

The Chinese consortium had bought their 40pc stake at Rs28, which placed it a high price-to-earnings multiple, given the PSX earnings per share at around Rs2.

“It also is an indication that foreign shareholders in the PSX see potential in the country’s stock exchange. In the next 5-6 years, we might see substantial improvement in the earnings of the bourse”, said this PSX official.

Mohammad Sohail, CEO of Topline Securities observed that with the listing of the PSX, it would stand at par with other quoted companies and all listing regulations and code of corporate governance would also be applicable to the PSX.

The bourse would have to announce the dates of its board meetings, Annual general meetings, release quarterly, six monthly and yearly accounts, disclose material information and follow regulations like other listed corporates.

A major investor, Captain Mansoor A. Mughal, said that the listing of the PSX would result in greater transparency and the separation of ownership from management would help run the Exchange in a professional manner.

He pointed out that at the moment, the local bourse was depending almost entirely on two products — ready cash market and future contracts. There was a need to introduce new products which would beef up volumes.

Zulqarnain Khan, executive director at Next Capital affirmed that the Chinese strategic shareholders in the PSX were expected to streamline new product development and introduce derivatives and options, which would improve liquidity in the market. “It would provide transparency and confidence in the minds of the investors”, he said.

When reminded that Chinese and Japanese investors were known for their love of speculation, he said that speculation was the spice of trading. It greatly helps in advancement of the market and multiplying volume of trade.

A high net-worth individual, Raheel Latif, thought that the Chinese PSX investors were here for the long haul. He mused that some Chinese investors may venture into the acquisition of smaller brokerage houses. “The price tag of say around Rs100m to Rs250m for a small brokerage house will be a pittance for them, but such an acquisition could help attract a large number of clients from their home country”, he stated.

Could the Chinese majority shareholders in the PSX quit in the short term? Shehzad Chamdia answered in the negative. He observed that according to the agreement, the strategic investors were supposed to keep themselves invested in the PSX for five years.

“They have the option to raise their stake to 51pc after three years and eventually, if they wish to disinvest, they have to find and sell their majority holding to some other strategic investor”, Shehzad said.

Published in Dawn, The Business and Finance Weekly, June 26th, 2017