KARACHI, July 10: With 55 days remaining to the deadline of Sept 3 by which the stock exchanges in Pakistan are to be demutualised, the regulators are streamlining rules and regulations and procedural requirements.

A notice released to the members (brokers) by the Karachi Stock Exchange on Tuesday, stated that under the Stock Exchanges (Corporatisation, Demutualisation and Integration Act), the statutory status of the KSE would change from company Limited by Guarantee to Company Limited by Shares.

Out of the total shares which shall be allocated to the members of the Exchange, the 40 per cent  shall be transferred to Members' respective Central Depository Company (CDC) accounts and in pursuance of Section 9(2) of the Act, the remaining 60 per cent of the total shares shall be held in KSE participant account of the CDC, whereby these (60 per cent) shares shall be held in the sub-account of initial shareholder in manner that each sub-account shall hold 60 per cent of the shares allotted to each initial shareholder.

"In view of the above and as advised by the SECP in this regard; the members not maintaining an active CDC account are advised to either open (1) a CDC participant account/or (2) an investor account with CDC so that the 40 per cent shares that are to be issued in the name of the initial shareholders (members) are credited in their respective CDC accounts," the KSE notice stated, asking members to comply with requirements latest by July 16, 2012.

An official of the bourse explained that 40 per cent of the shares of the paid-up capital of the KSE (the capital is currently being worked out by valuers) would pass on to the members own accounts, while the remaining 60 per cent would be in blocked account of the members with the CDC, for sale to strategic investors and the public in initial public offering (IPO) in the ratio of 40:20.

Following the demutualisation, the board of directors of the exchange would comprise 11 members with six nominations by the apex regulator, the SECP; four directors representing members with trading rights and the bourse managing director as the 11th member on the board. That would be a departure from the current five directors elected by the members (representing brokers); four nominated by the SECP and the MD as the tenth member.

An interesting situation could emerge in the two-year period between the completion of demutualisation and the timeline given for sale of shares to the strategic investors. "Effectively, the stock exchanges would be run by the SECP during those two years," said a member who asked not to be named. But he did not either clarify whether it would be good or bad for the exchange.

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