Plea against framing of rules not maintainable, SECP and PSX tell SHC

Published August 4, 2021
This file photo shows the Sindh High Court. — Wikimedia Commons/File
This file photo shows the Sindh High Court. — Wikimedia Commons/File

KARACHI: The Pakistan Stock Exchange (PSX) and the Securities and Exchange Commission of Pakistan (SECP) on Tuesday informed the Sindh High Court that a petition filed against framing of regulations was not maintainable as they were not liable to invite public comments about criteria.

They further contended that all regulations of PSX were statutory in nature and were framed under Securities Act, 2015 and amended from time to time and binding on the petitioner and all listed companies.

The Pakistan Stock Brokers Association through its lawyer had moved the SHC against the PSX and the SECP and challenged a portion [4(i)] of futures eligibility criteria for selection of securities eligible for trading, which said the securities of companies not complying with following conditions to be ineligible: “No investigation/inquiry has been concluded against the company with adverse findings of mismanagement or the company has not obtained stay order from court against any inquiry/investigation initiated by the commission”.

On July 15, a division bench of the SHC had ruled that a small portion of criteria for selection of securities eligible for trading in deliverable futures contract and cash settled futures contract markets would remain inoperative till the next hearing.

When the matter came up for hearing before the two-judge bench headed by Justice Mohammad Shafi Siddiqui on Tuesday, both respondents filed comments, copies of which were provided to the lawyer for petitioner who sought time to file counter affidavit.

The bench adjourned the hearing for a date to be fixed after summer vacation and directed the lawyer for the petitioner to file reply to the comments of respondents before next hearing.

However, it ruled that the earlier interim stay order would continue till next hearing.

The PSX and SECP in their comments further maintained that the futures eligibility criteria was not part of regulations but were framed separately as provided in clause 2.4 of PSX regulation and thus, they were not liable to invite public comments.

The PSX argued that more than 500 securities were listed with it, however PSX has prescribed eligibility criteria for allowing only those securities to be traded on futures contract which were liquid and free from any adverse finding of mismanagement during the review period.

The criteria in question is imposed to avoid any risk of default on settlement that may arise if relatively less liquid companies with adverse findings are allowed to be traded on futures counter, it maintained.

The SECP alleged that the petitioner has moved the SHC on the behest of Hascol and Unity Foods as their affairs were being investigated by it.

It further contended that change had been incorporated in the eligibility criteria in public interest to ensure that companies in which investigation/inquiry was pending may not be eligible only to the extent of a riskier segment of the market ie futures where contract duration was much longer than the regular counter/ready segment and therefore subject to additional risk.

The SECP further contended that until stay on investigation/inquiry was removed, investors may not be able to take an informed decision regarding investment in a riskier segment of market, hence allowing such companies in the futures market may add to market risk due to uncertainty surrounding their affairs and may jeopardise public interest.

However, these companies would remain eligible for trading on the regular counter, it added.

Published in Dawn, August 4th, 2021

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