KARACHI: Responding to the concerns raised by stockbrokers, the Pakistan Stock Exchange (PSX) has proposed amendments to the regulations with respect to the definition of accredited individual investors and their eligibility to trade on the recently launched Growth Enterprise Market (GEM) board.

The GEM board is a separate counter reserved for up-and-coming companies carrying higher investment and liquidity risks than mature companies listed on the exchange’s main board. Two companies have so far been listed on the GEM board, although they have attracted low volumes since their public offerings towards the end of 2021. Brokers have attributed the subdued activity in these shares to the regulator’s requirement that only institutions or accredited individual investors with net assets of at least Rs5 million can trade on the GEM counter.

The PSX has proposed changes in regulations that’ll enable it to “notify the manner of determining the eligibility criteria” of an accredited individual investor. In simpler words, the proposed amendment means that investors’ self-declaration will be “sufficient” as a verifiable means to trade shares on the GEM board.

Speaking to Dawn before the PSX’s move to amend the regulation, Topline Securities CEO Mohammed Sohail had called for simplifying the process for check-marking an investor as an accredited one. “The procedure is tedious right now because brokers have to get an undertaking and proof of assets to ascertain an investor’s eligibility. The regulators should make the process less cumbersome,” he had said.

Investor’s self-declaration will be ‘sufficient’ as verifiable means to trade shares on GEM board

Similarly, brokers resented the fact that the existing regulations held them financially responsible for any “misdeclaration” by investors. The existing regulations require the broker to honour a transaction by an ineligible investor from its own account by rectifying the underlying trade.

However, the proposed changes say an ineligible investor who has subscribed to the shares of a GEM-listed company will be allowed a “one-time exit at his/her own risk, without any responsibility at [the] securities broker end”.

The PSX has also proposed an “additional definition” of accredited individual investors under which someone holding shares in their Central Depository Company account worth Rs5m or more at the time of self-declaration should be considered eligible to trade on the GEM counter.

The proposed changes seek to replace the eligibility requirement to have “net assets” of at least Rs5m with “total assets” of the same value. The change from “net” to “total” is supposed to ensure “ease of eligibility monitoring” by the brokers.

Comments on the proposed changes can be submitted to the PSX by Jan 6, the exchange said.

Published in Dawn, December 31st, 2021