KARACHI, Feb 15: The Securities and Exchange Commission of Pakistan (SECP) has submitted a draft proposal to the Ministry of Finance seeking replacement of the Investment Companies & Investment Advisors Rules, 1971, with that of Rules 2002.

According to the SECP annual report received here on Saturday, the following are the salient features of the proposal:

1) Flotation of closed-end funds has been allowed in corporate as well as trust form. This structural flexibility will, in particular, facilitate privatization of ICP mutual funds.

2) Conversion of a closed-end fund into an open-end fund with prior approval of the Commission has been allowed. The Commission may permit such a conversion by evaluating the proposal of fund managers and the performance of the fund.

3) The responsibility for safe custody of all assets of a fund has been entrusted to a separate custodian.

4) Auditors of investment advisors have been restricted from being appointed as auditors of relevant mutual funds. Moreover, rotation of auditors of funds after every three years has been made mandatory. The Commission may also order special audit of a fund if the circumstances so warrant.

5) Penal provisions have been included for intentional and wilful defaults by fund managers.

6) Flotation of money market and other special purpose funds has been made possible.

7) A revised remuneration structure of fund managers, in line with the current industry practice, has been prescribed.

8) The component of capital gains has been excluded in calculating mandatory distribution of income of a mutual fund. The amendment is expected to provide liquidity to fund managers and enhance NAV of funds.

9) More than 50 per cent of directors on the boards of investment companies are required to be independent of the investment advisors.

10) Annual renewal of investment advisors license has been stipulated.—APP