The Securities and Exchange Commission of Pakistan (SECP) will carry out a comprehensive exercise wherein the listing process for both debt and equity securities will be holistically reviewed to streamline the process. The SECP's Capital Market Development Plan (2016-18) revealed a comprehensive exercise will be carried out wherein the listing process for both debt and equity securities will be holistically reviewed to streamline the process.
Further, under the Securities Act, the number of listings, in particular quality listings in a capital market signals the level of health and depth of that market. The decision of a company to go public sends a clear indication to potential investors that the company's management is willing to run the company in a transparent manner, by following all the prescribed disclosure requirements. Among the numerous benefits of listings, perhaps the most important are increased transparency and accountability, diversified ownership, ability to raise new capital for issuers, high reputation and rating for issuers, improved price discovery and increased liquidity in share prices of the company, improved corporate governance for shareholder protection and tax benefits for issuers. In continuity to what has already been highlighted in the challenges section, the number of quality listings needs to be increased by putting in place concrete initiatives. Further, controls and disclosures need to be reviewed and revised for ensuring greater transparency.
One of the key reforms included streamlining of the Listing process and regulatory framework for Public Offer of Securities, Private Placement and Disclosures in Prospectus: A comprehensive exercise will be carried out wherein the listing process for both debt and equity securities will be holistically reviewed to streamline the process. Further, under the Securities Act, 2015, separate rules for both public offer of securities and private placement, and rules covering the practice, conduct, functioning and regulation of bankers to the issue and advisors and consultants to the issue are being framed. Further, regulations are also being framed for licensing, criteria, functioning and operations of qualified institutional buyers. Additionally, role and responsibility of PSX, as a frontline regulator, is being assessed based on which IPO approval process will be streamlined so as to ensure that independent input is taken from specialists from accounting, governance, business, legal, etc for the IPO applications, the SECP said.
The SECP stated that the small number of Initial Public Offerings (IPOs) in the past can be attributed to several factors including market conditions and insufficient focus of the capital market industry to attract privately held companies to list. Key steps that are being contemplated to tackle this issue included creating industry specific roundtables, conferences and summits to highlight benefits of listing; setting up a panel of investment bankers/financial advisors to participate in IPO generation drive.
The SECP said that the existing regulatory framework and the process of book building will be reviewed and streamlined to enable the investors in small cities and towns to participate in the book building of IPOs.
To facilitate investors, it has become essential to develop an IPO environment that facilitates the investors by giving benefits of automation and by reducing the turnaround time involved. For the same purpose, a road map will be developed in coordination with commercial banks for enabling investors to apply for IPOs online/electronically. The efforts for success of SME Board: Earlier, an Over-the-Counter (OTC) market had been introduced to facilitate listing and trading of small cap companies. However, this counter remained inactive due to various factors, some associated with its operational and regulatory framework. To address the same, a separate board for listing and trading of shares of Small and Medium Enterprises (SMEs) has been set up at the PSX. Qualified Institutional Buyers and High Net-Worth Individual investors are allowed to trade in equity shares of SMEs on this board. The SME regulations introduced for the purpose put in place relaxed regulatory requirements to attract companies with small capital requirements. Efforts will be made to effectively market the same and attract SMEs for listings on this board. In this respect, the regulatory framework has already been rationalized to incentivise SMEs and book building mechanism has been introduced for the SME market for improved price discovery and transparency. Further, market makers will be introduced in SME market to encourage activity.
In line with the IOSCO recommendations and to ensure transparent reporting free from conflict, a non-industry controlled and independent audit oversight board will be established for oversight of auditors of public interest companies. Such board will be financially and operationally independent. In this respect, a joint committee of the SECP and the Institute of Chartered Accountants of Pakistan (ICAP) was formed to prepare recommendations for establishing an independent audit oversight setup for public interest company auditors in Pakistan, which has submitted its report after joint deliberation sessions. In its report, the committee has proposed certain amendments to the SECP Act to provide for the concept of audit oversight board which have been submitted for incorporation in the Act.
For active trading in the secondary market, one of the most important factors is availability of reasonable number of shares for trading which is referred as "free-float". Presently, the illiquid listed securities at the stock exchange having insufficient free float make the price discovery mechanism inefficient. To address the same, listed companies will be required to ensure a certain percentage of minimum free float within a specified period of time. Also, it is envisaged that review of mechanism and reporting of free float shall be carried out.
i) Introduction of Treasury Stock: In order to introduce the concept of treasury stock in Pakistan for the first time, in line with international best practices, the Companies (Buy-Back of Shares) Regulations are in process, pursuant to approval of amendments in section 95A of the Companies Ordinance, 1984 by the Parliament. These Regulations will replace the Companies (Buy-Back of Shares) Rules, 1999. The introduction of treasury stock will allow companies to buy back their shares and provide exit opportunity for investors in a depressed market, while acting as a means to stabilize share prices of companies.
Awareness of Stock Splits: In case of highly valued shares whose shares have a high market price, the trading activity may get restricted due to in-affordability of lot size for such shares. Accordingly, the concept of stock split will be encouraged to generate market activity in such high priced shares. Complete Dematerialization of CDS Eligible Securities: In order to bring liquidity and transparency and eliminate forgery and duplication of securities, it is envisaged that physical issuance of securities should be prohibited and all issued capital should be in dematerialized form. For this purpose necessary amendments have been proposed in the new draft Companies Bill.
The SECP said in order to improve corporate governance standards for listed companies and bring them in line with international standards, the SECP had introduced the revised Code of Corporate Governance (the "Code") in April, 2012. Considering that a period of four years has passed since implementation of the revised Code, a comprehensive review of the same will be undertaken, taking into account feedback received over time from several quarters including the listed companies. The same is expected to bring further improvements to the Code and facilitate in removing any impracticalities being faced by the listed companies in compliance with the Code. Possibility of establishing a forum of independent directors will be explored, this forum will help sharing of experiences and suggesting practical measures to address and cater for different board level situations, the SECP added.
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