ISLAMABAD, Dec 20: A meeting of the Securities and Exchange Commission of Pakistan (SECP) and the three stock exchanges here on Monday agreed to undertake the process of demutualization and integration of the stock exchanges simultaneously.

Official sources told Dawn it was also decided that the demutualization process of the exchanges would begin immediately and would be finalized by the respective stock exchanges by March 31, next year.

The meeting was presided over by the chairman, SECP, Dr Tariq Hassan and was attended by Managing Director (MD) Lahore Stock Exchange, Hamid Imtiazi, MD, Islamabad Stock Exchange, Aftab Chaudhry, Chairman, Karachi Stock Exchange Arif Habib and a number of other officials from the three stock exchanges and the SECP.

It was decided that concrete steps would be taken to put the institutional/legal framework in place to facilitate the process of demutualization. The three exchanges also agreed to initiate discussion on integration among themselves before taking up the matter with the SECP till the finalization of the demutualization process.

The sources said the expert committee on demutualization and integration of stock exchange in October had proposed to the SECP models of fully integrated demutualized exchange (FIDE) and national exchange. One of the models ought to be implemented in the country.

The SECP and the chairmen and managing directors of the stock exchanges of Karachi, Lahore and Islamabad had reviewed the expert committee's report in one of their meetings.

Adoption and implementation of either of models, they had agreed, would be determined through a consultative process with the relevant stakeholders. The FIDE model, they said, proposed merger of the three stock exchanges into a single FIDE.

The Central Depository Company of Pakistan Limited (CDC), National Clearing Company of Pakistan Private Limited (NCC) and the National Commodity Exchange Limited (NCEL) shall become subsidiaries of the FIDE.

As an alternative to the FIDE model, and in case sufficient progress was not made towards demutualization and integration in one year, a New National Security Exchange (NewSE), sponsored by financial institutions, shall start its operation as a National Exchange.

The National Exchange, they said, would have the economic and human capital and the desired governance structure to emerge as a "truly national securities exchange in Pakistan and address the problems of the market".

They said the report had suggested that after three years the SECP should observe the desirability and feasibility of each exchange. If an exchange was found unable to effectively serve the investors' interests, its registration should be cancelled.

The report gave a detailed assessment of the present capital market conditions, specifically identifying the issues/flaws inherent from the existing structures of the three stock exchanges, they said.

It provided guidance on the significant features of the envisaged demutualized exchange paradigm such as legal mode and sequencing, the process of demutualization, integration and listing, the structure of the board of directors, encouragement of Electronic Communication Networks (ECNs) etc, they observed.

As part of the capital market reform process, the SECP had constituted the Expert Committee on February 17 this year to formulate a comprehensive plan for demutualization and integration of stock exchanges in the country.

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