ISLAMABAD, May 2: The Securities and Exchange Commission of Pakistan (SECP) has framed new draft rules allowing the companies to give dividends in the form of shares of any other company – listed or unlisted.

The regulation still in draft stage is titled, ‘Distribution of Specie Dividend Regulations, 2013, which has been published in the official Gazette of Pakistan and placed at the Commission’s website for

public comments that can be submitted online on, by May 23, 2013.

‘The recognised practice in the capital markets of the country is to issue ‘bonus shares’ as dividends to the share holders,” said an official of the SECP, adding, “However, the unrecognised practice in terms of legal requirement also continue in the market where the shares of other companies are given as dividends.”

The official said the category is termed as ‘specie dividend’ that is form of dividend where shares of another company whether listed or unlisted.

These shares are held as investment by the issuing company and can be distributed among the entitled shareholders of the issuing company.

Though the distribution of shares of another company as dividend is an acceptable practice in the capital market as it is considered beneficial to both the issuing company and its shareholders, however there were no regulations in this regard, the official said.

“These draft Regulations have been developed after detailed study of practices in various international jurisdictions, keeping in view to mitigate the chances of fraud and deception by the issuer,” the officials added.

The draft regulation has specified that the issuing company can only distribute ‘specie dividend’ only once in two years.

“This is to ensure that the issuing company may not be forcibly inducting the investments of share holders indirectly into the entity whose shares are being given as specie dividends,” the official said.

The draft regulation covers broad parameters, regarding the eligibility conditions for declaration of specie dividend, and it is required to provide an independent valuation report for the securities to be distributed in case the company is unlisted.The draft regulation also contains conditions for distribution of specie dividend, and the requirement to provide a detailed information memorandum to shareholders for the securities to be distributed.

In order to ensure maximum investor protection and transparency it has been made a requirement that a company’s Articles of Association should explicitly permit the distribution of specie dividend and the company obtains the shareholders’ approval before any such distribution.

Besides the SECP has suggested in the draft to make strict monitoring of the non-listed entities whose shares were being given as dividend.

“Where securities of an unlisted company are distributed as specie dividend, listing of such securities shall be mandatory within a period of 90 days from the date of declaration,” the official said, and for this purpose a no objection certificate shall be obtained from the relevant stock exchange(s) prior to declaration.

“In case such securities cannot be listed, the issuing company shall encash these securities at the option of the shareholders,” the official said.

He said that it is expected that promulgation of these draft Regulations would facilitate companies to distribute securities of other companies as ‘specie dividend’ subject to disclosure requirements and sufficient conditions for ensuring protection of investors. The SECP has said that since many companies in Pakistan are closely held, the distribution of securities as ‘specie dividend’ in a protected environment will help in broadening the investor base and depth of the market.