ISLAMABAD: Following a series of meetings with market participants, the Securities and Exchange Commission of Pakistan (SECP) has finalised the reforms agenda for capital markets based on demands presented by stakeholders.

SECP chairman and senior management met with the Stock Brokers Association (SBA) on Friday and assured them about the measures being adopted for ease of doing business in the stock exchange.

SECP chairman informed the SBA that reforms undertaken by the apex regulator aim to stabilise the markets, attract liquidity, facilitate ease of doing business, revitalise market development and restore investor confidence.

The reforms agenda has been finalised after considering input provided by other market participants including large brokers, leading corporate and financial institutions and senior management of the market infrastructure institutions.

Although the SECP has introduced the Centralised Know-Your-Customer Organisation (CKO) regime to facilitate investors and ensure transparency and efficiency in the process, brokers have raised objections against the CKO regime.

Despite resolving various issues related to biometric verification of stock market investors under the CKO, the regulator has placed the onus of biometric verification on the stock brokers.

The brokers have asked the SECP to introduce central database for biometric verification to be executed by the National Clearing Company of Pakistan Ltd (NCCPL).

“The NCCPL has offices in stock exchange buildings and biometric verification should be conducted at one place instead of verification by each broker independently,” said one PSX stock broker based in Islamabad.

To enhance trading capacity of market participants, the SECP has approved amendments in the NCCPL Regulations “for discontinuing the 10 per cent additional margins being collected from brokers and the 10pc additional haircuts being applied by the NCCPL on margin eligible securities.”

The slabs for liquidity margins have been revised which would now be applicable only on large exposures of brokers whereas in order to manage risk, credit rating has been added while implementing revised slabs.

Among other things, the SECP has introduced Murabaha Share Financing Regulations granting approval for leverage financing in Shariah-compliant securities.

The stock brokers’ complaints with regards to the ‘Blank Selling in Deliverable Futures Contract Market’ have also been resolved by amending PSX Regulations.

The SECP has also allowed the ‘Unblocking and Pledging of Margin Financing Securities’ for meeting the NCCPL margin requirements, requirements of tripartite agreement for margin financing has also been removed.

Responding to demands raised by the corporate sector, the SECP has decided to amend the

Listed Companies (Code of Corporate Governance) Regulations, 2019 to accommodate international best practices and to facilitate ease of doing business, considered shifting from rule-based corporate governance framework towards a combination of mandatory practices and recommended practices.

The SECP has also decided to exempt applicability of International Financial Reporting Standards (IFRS) 9 related to debts due from government to power supply chain companies for a limited period of three years — that is up to June 30, 2021, as well as IFRS 16 to all companies, which have entered into power purchase arrangements before Jan 1.

These exemptions have been made in light of concerns expressed by companies regarding practical limitations in their applicability.

At the same time, the commission has also taken up two measures of defining ‘Minimum Brokerage Commission’ and release of PSX shares belonging to the brokers that are likely to invite strong reactions from some brokers whereas others are expected to support it.

The SECP considers that setting minimum commission at sale and purchase of shares would encourage market development and support commercial viability of brokerage industry, while some brokers object to the move that it was contrary to concept of competition and free market.

Published in Dawn, September 1st, 2019