KARACHI: The Pakistan Stock Exchange (PSX) is looking to issue 15 new Trading Right Entitlement Certificates (TREC) licences that allow their holders to trade shares and other securities on the national exchange for either themselves or their clients.

TREC holders earn commissions on trading activity that takes place on the stock exchange. Of the 279 TREC holders at the end of 2021-22, 155 were based in Karachi, 79 in Lahore and 45 in Islamabad.

About 200 brokers owned the erstwhile Karachi Stock Exchange besides reserving the right to trade securities on the platform until 2016 when a consortium led by Chinese investors acquired a 40 per cent shareholding and management control of the bourse.

The transaction not only reduced the shareholding of brokers but also separated ownership and trading rights through a process called demutualisation.

The post-demutualisation era has seen a small increase in the number of TREC holders, thanks to the liberalisation of the licensing regime.

The TREC holder can earn up to 0.15pc of the transaction value on every transaction. According to a study that the PSX carried out using statistics for the second half of 2021, a TREC holder can make a minimum revenue of Rs180,125 per day by capturing just 1pc of the regular market turnover. That’s based on the fact that the average daily value of transactions during the six-month period in the regular market was Rs12bn.

Similarly, a relatively strong TREC holder controlling a market share of 5pc in terms of the average turnover makes a top line of almost Rs1 million a day, the study showed.

A potential TREC buyer is supposed to spend around Rs3m in purchasing the certificate. The largest part of the expense is the TREC fee (Rs2.5m).

Other expenses include the processing fee (Rs100,000), the Securities and Exchange Commission of Pakistan licence fee (Rs100,000) and refundable deposits of Rs300,000 with the Central Depository Company and National Clearing Company of Pakistan.

More importantly, aspiring TREC holders must comply with the “financial resource requirement” under the Securities Brokers Licensing and Operations Regulations, 2016.

To be a full-scale TREC holder with trading, settlement and clearing mandates, the resource requirement includes a base minimum capital of Rs5-8m, net worth of Rs35m and liquid capital of Rs15m.

TREC holders can offer trade execution services to retail, institutional and foreign clients. They can also become underwriters for right shares issue and act as agents for share buybacks.

They are also allowed to act as advisers for the listing of companies on the Growth Enterprise Market Board, become market-makers and offer government and private-sector bonds via the PSX platform.

Published in Dawn, March 25th, 2023