KARACHI: The Pakistan Stock Exchange is mulling changes in its regulations to revamp the defaulters’ segment to protect the rights of minority shareholders.

The exchange places listed firms in this segment when they commit any of the 14 specific irregularities mentioned in the PSX Rule Book, the document containing all exchange-related regulations for the 532 listed companies.

The PSX has proposed that the existing defaulters’ segment be restructured in two separate counters instead for “better transparency” and the “classification of non-compliant” listed companies. The new categories should be called the non-compliant companies’ segment and the winding-up segment.

Under the existing regulations, not starting commercial production within 90 days of the timeframe disclosed in the listing prospectus leads to a company’s placement in the defaulters’ segment. The same is the case with companies that’ve kept their operations suspended for one year. The PSX has proposed that the two conditions be removed from the regulations because companies disclose their financial performance periodically and, as such, their placement on the defaulters’ segment doesn’t disseminate any material information.

The PSX also proposed the removal of events like the suspension of Central Depository Systems (CDS) eligibility by CDS, qualified opinion on the going-concern assumption, and the issuance of show-cause notice by the Securities and Exchange Commission of Pakistan (SECP) for the initiation of winding-up proceedings.

Instead, the PSX has proposed eight events that should lead to a firm’s placement in the non-compliant companies’ segment. Some of these events are the non-holding of annual general meetings, non-submission of annual audited financial statements, non-payment of annual listing fees or penalties for two years, and failure to comply with any provision of Chapter 5 of the PSX regulations that deal with a public listing.

Other proposed events that should lead to the placement of a firm in the segment of non-compliant companies include its failure to join CDS, revocation of its CDS eligibility, cancellation of its licence by the SECP and the passing of a winding-up order by the apex regulator.

As for the placement of companies in the winding-up segment, the PSX has proposed three trigger events. These include the commencement of voluntary winding-up proceedings through a special resolution and the filing of a winding-up petition by either the apex regulator or a creditor/shareholder.

Published in Dawn, February 1st, 2023

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