KARACHI: A couple of stockbrokers along with their traders were chatting excitedly outside the stock exchange trading hall on Monday.

There was occasional burst of anger among the protesters.

While investors, who frequent the market in the morning, gathered inquisitively, the angry men appeared to be outraged against the recent notification by the Securities and Exchange Commission of Pakistan (SECP), which sought to implement the standard range/scale of brokerage commission with effect from Oct 14.

According to the notice, the commission range of three paisa per share or 0.15 per cent of the transaction value — whichever is higher — up to 2.5pc of the transaction value has been prescribed.

The issue that forced regulators to put into place the minimum commission was to curb the practice by “many brokerage houses that were charging nominal or zero commission rates”.

Most people were perplexed at the thought of zero commission.

“If the brokers charged nothing for conducting trade, what’s the sense in conducting the business?” Several senior participants tried to dodge the question. However, those who would talk on condition of anonymity confided that there were 300 brokers and around 25,000 active clients—defined as those who conducted a transaction at least once in three months.

“It put the brokers in cut-throat competition for institutional business,” said one. Another reluctantly admitted that those who worked for zero commission might be making money by illicit means such as front running.

But the PSX, which had released the notification of minimum commission, said in a statement on Monday that it had done so in exercise of its statutory power u/s 7(1)(w) of the Securities Act, 2015 to make regulations relating to brokerage and other charges. It added that “after following the due process, including extensive consultations with all the stakeholders and with the approval of its board and the SECP, introduced the standard range/scale of brokerage commission.”

“The minimal or zero commission was said to be adversely affecting true competition and creating a disadvantage for market participants in the form of disparity in service standards”.

This PSX affirmed that the implementation of a standard range of commission would be helpful in enhancing quality standard of brokerage services including research, encouraging expansion of distribution network for brokerage services, improving proficiency and technical infrastructure of brokers and maintaining minimum level of governance and regulatory requirements.

“All these ensuing reasons will contribute to the economic progression and benefit investors at large in the long run.”

An SECP official, who was in agreement with the PSX over the regulation, said that around 80pc of the brokers supported the introduction of standardised scale of brokerage commission in the capital market.

He said that due to growing compliance costs of brokerage houses including anti-money laundering requirements, the initiative is expected to support the industry enabling brokers to develop the capacity of the market and comply with global benchmarks.

Moreover, standardised commission was also not applicable to transactions in the Margin trading System, Margin Financing System and Morabaha Share Financing.

Published in Dawn, October 15th, 2019