All existing Trading Right Entitlement Certificate (TREC) holders of stock exchanges, who were not registered as broker within two years of demutualisation, are required to be registered by August 26, 2014 under demutualisation law.
Sources told Business Recorder here on Saturday that prior to the promulgation of Stock Exchanges (Corporati-zation, Demutualization and Integration) Act, 2012, the stock exchanges in Pakistan were operating as non-profit companies with mutualised structure wherein the members had the ownership as well as trading rights. The structure inherently created conflict of interest as members predominantly control the affairs of the stock exchange which resulted in lack of transparency in the operations of the stock exchange and compromises investors' interest.
The Demutualization Act provides a framework for the corporatisation, Demutualization and integration of the stock exchanges and resulted in segregation of trading rights and ownership rights of the Stock Exchanges. Amongst other important features, the Demutualization Act provided specific provisions for the Trading Right Entitlement Certificate (TREC) holders focusing primarily on treating 'Trading Right' as mere a 'right to obtain trade license' and not as an asset.
Following the spirit, the Demutualization Act clearly specifies that all existing TREC holders, which were not registered as broker on the date of Demutualization ie August 27, 2012 would be entitled to either get itself registered as broker till two years from the date of Demutualization ie August 26, 2014 or transfer their TREC to another corporate entity. Failure to either transfer the TREC or get itself registered as broker would result in lapse of TREC Holder.
Sources said that soon after the demutualisation of stock exchanges, the Securities and Exchange Commission of Pakistan communicated the requirements specified in Demutualization Act pertaining to TREC to all three stock exchanges with an instruction to notify the same to all TREC holders. The reminders to this effect were also issued by the SECP and the Stock Exchanges.
The TREC holders of the stock exchanges, at the moment, are fully aware of this requirement and interested entities have already started submitting their applications for grant of certificate of registration through respective stock exchanges.
After August 26, 2014, there will be no unregistered TREC holder and all new TREC holders would be required to commence business within few months. This development is a major step towards international best practice of treating the license as merely a license rather than considering it as an asset. It is expected that the step would result in improving the quality of brokers as only financially and technically sound entities would now consider obtaining TREC, sources added.
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