Three-year bourses, 10-year financial market uplift plans readied: SECP informs National Assembly panel

The Securities and Exchange Commission of Pakistan on Thursday informed the National Assembly Standing Committee on Finance that the SECP has finalised three-year Stock Market Development Plan and 10-year Financial Market Development Plan to encourage local and foreign investment vital for economic development of the country.
Muhammad Ali, Chairman SECP informed the committee on Thursday that the SECP also plans to finalise four key new draft legislations ie Companies Law, Insurance Law, NBFIs Law and Pension Law in next one year. Under the regulatory measures, the commission is also preparing roadmaps for capital markets, NBFC, and insurance in consultation with market.
He said that once these plans are finalised, these would be shared with the all the federal economic ministries and departments and decisions would be taken on them unanimously for their smooth implementation. The proposed legislation's like Securities Act, Demutualization of Stock Exchanges Act, SECP Act are already undergoing passage process in the parliament and work is already underway from the last six months on new Companies Law and drafts of the three new legislations Insurance Law, NBFIs Law and Pension Law would be completed next year, he added.
The SECP Chairman said until the demutualization of stock exchanges, the SECP would not be able to properly regulate the stock market. At present, there are only 200 members at Karachi Stock Exchange and after demutualization the number of members and brokers would increase manifold. The number of members of the exchange could cross thousands after completion of the demutualization of exchanges. The management of stock exchanges would be shifted to a specialised management instead of existing regime of members only.
He also stressed upon the importance of developing different segments of non-banking financial markets for efficient transmission of savings and investments. To a query, he further informed the committee that futures' trading is allowed in gold and wheat. The future trading would also be allowed in cotton, rice and sugar. The SECP Chairman said the concept of Real Estate Investment Trust (REIT) have not been able to develop itself due to stringent regulations. He further stated that the volume of Equity Funds is around Rs 120 billion which is very low while it could grow many times. He explained to the committee NSS Schemes are offering 13% interest, bank interest rate is high and banking spreads are also high due to which no one is encouraged to make investment in equity funds.
The SECP Chairman explained to the committee that new Insurance Law is required to properly regulate the working of insurance companies as SECP at present has limited powers to initiate proceedings on complaints filed by the policy holders. He admitted that a number of fake insurance companies are working and new Insurance Law is necessary for taking prompt action against such companies. For example, fake insurance companies are ready to give insurance of newly registered cars with the excise and taxation office after payment of small fee. Later, such insurance companies were found fake. Without the new Insurance Law, it is not possible for the regulatory body to take strict action against the fake insurance companies. He further informed that SECP has finalised a draft of rules for major insurance companies for allowing them create their Takaful Windows and offer Takaful products to the public through their large branch networks. These rules would be further discussed with stakeholders in the industry in February and hoped in March 2012 major insurance companies would be formally allowed to offer Takaful products to general public. Earlier, SECP had allowed new companies to offer Takaful products and due to their small size and limited branch network, these companies have not been able to promote Takaful products in required manner. Major companies after this decision would be able to increase the penetration of Takaful coverage in the country.
Muhammad Ali stated that within the insurance sector, the SECP is focusing on Crop Insurance, Micro Insurance, Health Insurance and Terrorism Insurance. The crop insurance is limited to the bank loans offered for crop loans and those who do not take bank loans for crops are unable to utilise such bank loan facility. He said that once the regulatory regime is changed it would be easy for the formers to get their crops insured from the insurance companies without obtaining loans.
He clarified that until and unless the corporate agriculture farming is introduced in the country the agriculture sector would continue to face difficulties in obtaining loans. He said that corporatisation of agriculture would help documenting the agriculture and this would encourage the banking sector to come forward and sanction loans for them as per their requirements. Documentation of agriculture sector would also help government to tax it in future upon completion of its documentation.
He informed that due to non-availability of debt market present Term Finance Certificates (TFCs) and Pakistan Investment Bonds (PIBs) auctions are routed through banks and once the debt market is developed these auctions could be done through stock exchanges and this would help ordinary investors to make investment in such government securities.
He said the SECP would soon allow the investors to deposit company registration fee through their credit cards or through banking instruments and there would be no need for them to come to SECP offices for company registration. Similarly, electronic voting would also be introduced in big companies Board of Directors and shareholders meetings. For transparency purposes, in this regard, amendments would be required in Companies Ordinance.
The SECP Chairman added that a debt committee is also being formed to develop the debt market in the country. The standing committee also decided to convene another meeting to address the issues faced by the insurance sector and take measures to improve savings rates in Pakistan.