KARACHI: Small stockbrokers will soon shift their clearing, settlement and custody functions to EClear Services Ltd, which is the country’s first professional clearing member (PCM) entity set up by the Central Depository Company (CDC).

Speaking to Dawn on Wednesday, EClear Services Ltd CEO Shariq Naseem said more than two dozen trading-only brokers have signed up for the company’s services.

The clearing function in a stock market relates to the settlement of trades. A clearing member is supposed to match buy and sell orders and transfer money to the seller while moving shares to the buyer.

According to the new broker regime introduced by the Securities and Exchange Commission of Pakistan (SECP), stockbrokers have been categorised into three segments. Brokers in the first category are allowed to do trading and clearing while keeping shares in their custody. They can also provide clearing and custodial services to other brokers.

Members belonging to the second category can do trading and self-clearing besides maintaining custody of shares. But they can’t provide these services to other stockbrokers.

The third category is of small brokers with a trading-only mandate. It means they have no clearing and custody rights even for themselves.

“The purpose of this regulation is to prevent financially weak brokers from keeping clients’ assets with them. From now on, the professional clearing members will do clearing for small brokers and also provide them with custodial services,” said Mr Naseem, adding that every stockbroker has been handling its clearing and custody functions itself until now.

“If your broker defaults or runs away, you’ll have nothing to worry about as an investor. Your assets will be safe with the professional clearing member. You’ll be able to start working with another broker the very next day,” he said.

A statement released by CDC said all trading-only brokers will begin using the new company’s services when the new regime is completely implemented by December this year.

The SECP assigned the task of implementing this regime to the three self-regulated organisations in the capital market ie CDC, PSX and NCCPL. CDC acted as project manager.

Internationally, the concept of PCM is also known as a general clearing member. It’s a third-party clearing service provider offering services to trading members who either voluntarily or by virtue of the regulatory framework don’t act as clearing members.

Published in Dawn, November 11th, 2021