SECP agrees to amend brokers’ regime

Updated February 19, 2020

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The Securities and Exchange Commission of Pakistan (SECP) on Tuesday agreed to amend the new brokers regime regulations to accommodate the demands of PSX Stockbrokers Association (PSA). — Reuters/File
The Securities and Exchange Commission of Pakistan (SECP) on Tuesday agreed to amend the new brokers regime regulations to accommodate the demands of PSX Stockbrokers Association (PSA). — Reuters/File

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) on Tuesday agreed to amend the new brokers regime regulations to accommodate the demands of PSX Stockbrokers Association (PSA).

The decision came after negotiations with brokers from Lahore and Karachi via electronic links. The SECP had notified the new regime on Feb 3 but was faced with serious reservations from the PSA, which even threatened to approach the court of law against certain clauses of the Securities Brokers (Licensing and Operations) Regulations, 2016.

However, after detailed discussions between the PSA and SECP, led by Chairman Amir Khan, the financial requirements for category II - Trading and Self-Clearing (TSC) brokers has been decreased.

There are three categories of stockbrokers under the new regime according to their net: beginning with Trading & Clearing (T&C) at the top, followed by Trading & Self-Clearing (TSC) and lastly, Trading Only (TO).

Under the new regime, the T&C and TSC categories shall be permitted to retain custody of client assets whereas TO broker would only have custody of its proprietary book, directors and sponsors and their close relatives.

TO will therefore operate with significantly reduced compliance requirements, and the custody of their client’s shares will be managed by Professional Clearing Member a – new body to be formed.

“This was our key demand, which was already incorporated in the regulation notified on Feb 3, as it safeguards the interests of TO brokers,” said PSA General Secretary Ghulam Mujtaba Sarkarwala.

He added, “Now it has been decided that this regime will not be implemented as long as the PCM was not functional.”

The demand of the PSA approved by the SECP was the gradual increase in the minimum networth requirement for TSC to Rs50 million by Sept 30 this year, Rs60m by Sept 30, 2021 and Rs75m by end of September 2022.

The earlier notification had the minimum networth at Rs75m by September 2020 and Rs100m by same month of 2021.

Condition of independent director and audit committee for TSC shall be removed, as it was recognised by that the code of corporate governance for listed companies does not apply at that level.

The SECP has also accepted that the credit rating requirements will be applicable at brokers with large custody of up to 25 times belonging to clients.

Published in Dawn, February 19th, 2020