KARACHI: The Pakistan Stock Exchange (PSX) told investors on Tuesday that two brokerage houses have converted into the category of Trading-Only Securities Broker.

The conversion of Progressive Securities Ltd and CMA Securities Ltd follows a string of similar transitions by about 52 PSX brokers under the new broker regime introduced by the Securities and Exchange Commission of Pakistan (SECP).

Stockbrokers have been categorised into three segments in order to help the smaller players 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).

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.

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, which has been gaining increasing popularity recently, is small brokers with a trading-only mandate. It means they have no clearing and custody rights even for themselves.

The PSX said the latest two brokers that converted to the trading-only category will have EClear Services as its professional clearing member for settling the executed trades and keeping custody of securities and money of all accounts, including proprietary ones.

In an earlier interview with Dawn, a representative of EClear Services said its purpose was to prevent financially weak brokers from keeping clients’ assets with them — something all stockbrokers did until two years ago. In other words, having a professional clearing member means investors can seamlessly switch to another broker immediately even if their existing broker defaults or tries to run away.

Published in Dawn, August 23th, 2023