WEDNESDAY MARCH 28: Corporatisation, demutualization, integration: Stock Exchanges Bill 2009 passed

ISLAMABAD: The joint sitting of the Parliament on Tuesday unanimously passed "Stock Exchange (Corporatisation, Demutualization and Integration) Bill, 2009 for the growth and strengthening of capital markets in Pakistan which will effectively create a distinction between ownership rights and management functions in a stock exchange.
The Stock Exchange (Corporatisation, Demutualization and Integration) Bill would also effect a balance among interest of different stakeholders in the corporate and governance structure of a stock exchange and to segregate ownership and trading rights. For the first time after the passage of 18th Constitutional Amendment, a joint session passed a bill. The National Assembly had passed Stock Exchange (Corporation, Demutualization and Integration) Bill, 2009 and sent to Senate for passage. But the Senate did not pass it within ninety days. Before the 18th Constitutional Amendment, such bills used to be sent to Mediation Committee under 17th Constitutional Amendment in the tenure of General Pervez Musahrraf(Retd). After the 18th Constitutional Amendment, the parliament approved the previous procedure for passing a bill through a joint-sitting which was given in the original form of the 1973 constitution.
According to objects and reasons of the Bill, demutualization is the process of converting a mutually owned company to a company owned by the shareholders. This process involves not only comporatization, which is the conversion of a stock exchange limited by guarantee into the one limited by shares but also it segregates ownership and trading rights. Hence demutualization brings a balance among interest of different stakeholders in the corporate and governance structure of a stock exchange.
Apart from attracting capital, a demutualized/corporatized entity would result in improvement in the governance structure, segregation of regulatory functions from commercial functions and separation of trading rights and ownership rights. Demutualization would also assists in attracting international strategic partners.
Federal Minister for Religious Affairs Syed Khurshid Ahmed Shah presented the Bill in the joint Sitting of the parliament for its passage. The House passed the Bill unanimously without any amendment. According to main segments of the Bill, Demutualization Committee (1) The members of a stock exchange shall not later than thirty days from the commencement of this Act, in a meeting of the stock exchange, ratify the creation and constitution of the demutualization committee existing at such commencement.
(2)The committee shall be fully authorised to:
(a) Approve the valuation of the stock exchange to be undertaken by the investment bank pursuant to clause (a), sub-section (1) of section 4;
b) enter into negotiations and finalise the sale of not more than forty percent of the total issued share capital out of the shares lying in the blocked account with any one or more strategic investors or financial institutions;
(c) determine the offer price for offer for sale of shares to general public.
Submission of Information by the stock exchange: (l) Within forty-five days of the commencement of this Act, each stock exchange shall submit to the Commission the following, namely:-
(a) a valuation of the stock exchange approved by the committee as any date that may be specified by the Commission, based on the discounted cash flow or net asset value of the stock exchange, or any other internationally accepted method of valuation undertaken by a renowned international investment bank approved by the Commission:
Provided that the Commission may, on a reasoned request made by the stock exchange, extend the time for the submission of the valuation of the stock exchange till 120 days from the commencement of this Act;
Effect of Corporatisation: (1)All assets and liabilities of the stock exchange as at the date of Corporatisation shall remain the assets and liabilities of the stock exchange.
(2) The Corporatisation of the stock exchange shall not:
(a) create a new legal entity or prejudice or affect its identity or continuity;
(b) adversely affect the registration of the stock exchange under section 5 of the Securities Ordinance;
(c) prejudice or affect the continuity of its undertakings;
(d) render defective or affect any legal, disciplinary or other proceedings brought by or against it prior to the date of Corporatisation;
(e) affect the validity of any regulation made by the stock exchange or the Commission in pursuance of section 34 of the Securities Ordinance;
Demutualization: A stock exchange shall stand demutualised when the Registrar has issued a certificate of re-registration to the stock exchange in accordance with section 6.
Rights attached to shares in the blocked account: (l) All rights in respect of the sixty percent shares of each initial shareholder deposited in the blocked account shall vest and be exercised.
Effect of demutualization: (1) From the date of demutualization, notwithstanding anything to the contrary contained in any other law for the time being in force or any agreement, award, judgement, decree or other instrument for the time being in force, the demutualization of the stock exchange shall become binding on all persons and authorities having any contractual or statutory, right, power, obligation or liability in connection with the stock exchange.
(2) The demutualization shall not adversely affect the registration of the stock exchange under section 5 of the Securities Ordinance.
(3) A shareholder may or may not be a TRE certificate holder of the stock exchange after demutualization.
Listing of shares: (1) The shares of a stock exchange shall be listed, on any such stock exchange and within any such time as the Commission may prescribe in consultation with the board of directors of the stock exchange which is to be listed.
(2) Where the shares of a stock exchange are listed on itself, the Commission shall act as the front line regulator of such stock exchange for such listing, and notwithstanding anything contained in any other law, shall have the necessary powers and authority to regulate and administer all the laws, rules and regulations prescribed for such matter.
(3) The self-listing of the stock exchanges under this section shall be administered and managed by the Commission in such manner as may be prescribed.
(4) A stock exchange shall make an application for the listing of its shares on itself in the manner and form, and subject to such conditions, as the Commission may prescribe.
(5) Upon receipt of an application under sub-section (4), the Commission may if it is satisfied, after making such inquiry and receiving such further information as it may consider necessary, that the application fulfils the prescribed conditions for listing, order the listing of the shares.
(6) Wilful failure of a stock exchange to comply with any prescribed condition or direction of the Commission shall be an offence under this Act.
Trading rights: (l) An initial shareholder who is issued a TRE certificate under section 5 shall, if not already registered as a broker with the Commission, be entitled to be so registered not later than two years from the date of demutualization provided that he meets the fit and proper criteria:
Provide further that such TRE certificate holder shall commence business not later than six months from the date of registration as a broker.
(2) A TRE certificate issued under section 5, may only be transferred once in a manner as may be prescribed: Provided that transfer of the TRE certificate by a registered broker shall result in the cancellation of his registration, as broker.
(3) Any fit and proper person who acquires a TRE certificate from an initial shareholder in accordance with sub-section (2), shall get himself registered as a broker not later than six months from the date of acquiring the TRE certificate and shall commence business not later than twelve months from the (late of acquiring the TRE certificate.
(4) A stock exchange shall not issue new TRE certificates to any person until 30th June, 2010 unless a two-third majority of TRE certificate holders of a stock exchange decide otherwise.
(5) After 1st July, 2010 till 31st December, 2019, a stock exchange shall offer for issuance fifteen IRE certificates each year in the manner prescribed by the Commission.
(6) After 2019, no restriction shall be placed on the issuance of 1RE certificates by the stock exchange, and any person who meets the fit and proper criteria for registration as a broker shall be eligible to be issued a TRE certificate.
(7) Any person who is issued a new TRE certificate shall get himself registered as a broker not later than six months from the date of issuance of such TRE certificate and shall commence business not later than three months from the date of registration as a broker.
(8) After the date of demutualization, only a private company or a public company as defined in the Companies Ordinance, 1984 (XLVII of 1984) shall be eligible to obtain registration as a broker on a stock exchange:
Provided that any TRE certificate holder who is registered as a broker on a stock exchange on the date of commencement of this Act shall not be required to convert in to corporate brokerage house till one year from the commencement of this Act.
Explanation: For the purpose of this sub-section the expression "Corporate brokerage house" means a private company or a public company which is registered as a broker.
(9) All corporate brokerage houses shall comply with the provisions of the Code of Corporate Governance issued by the Commission as amended from time to time.
(10) Except as provided in sub-section (2), all TRE certificates shall be non-transferable.
(ii) Failure of a person, holding a TRE certificate including an initial shareholder, to get himself registered as a broker or commence business within the different periods specified in this section, or in the case of an initial shareholder, to transfer the TRE certificate within two years from the date of demutualization, shall result in the lapse of such TRE certificate.
(12) The Commission shall prescribe the manner, form and procedures for the transfer and issuance of any TRE certificate in any stock exchange.
Integration without application to the Court: (1) Any two or more stock exchanges may, upon filing of a scheme of integration, and after compliance with such procedures as may be prescribed, be integrated by an order of the Commission, so as to transfer and vest in the successor stock exchange ("the successor stock exchange") all the assets, undertakings and liabilities of any stock exchange which, upon such integration, is proposed to cease to exist ("the transferor stock exchange"). Stock exchanges desirous of integrating may also do so by creating a new legal entity to which the assets, undertakings and liabilities of each of the stock exchanges may be transferred.
(2) A scheme of integration may only be submitted to the Commission under sub-section (1) after it has been approved by a special resolution of the shareholders of each stock exchange.
(3) The successor stock exchange, if already registered as a stock exchange, shall not be required to apply to the Commission for fresh registration. Where however, a new legal entity is created as a result of integration, such entity shall apply for registration as a stock exchange under section 5 of the Securities Ordinance. The registration granted to any existing stock exchange which ceases to exist after the integration shall lapse upon such integration.
According to miscellaneous of the Bill: Restriction on amendments to the Memorandum and Articles and further issue of capital-(1) A stock exchange shall not make any amendments to its Memorandum and Articles of Association without the prior written approval of the Commission.
A stock exchange shall not issue further shares without the prior written approval of the Commission. Winding up of a stock exchange- A stock exchange shall not commence any proceedings for winding up, whether voluntary or otherwise, without the prior written approval of the Commission:
Provided that notwithstanding anything contained in any other law for the time being in force, the Commission shall have the power to take all necessary steps to rehabilitate a stock exchange that is facing financial or operational problems, in a manner as may be prescribed.
Prohibition on sale etc of assets of the stock exchange.- No stock exchange shall sell immovable assets owned by the stock exchange at the date of corporatization without the prior approval of the Commission and shall ensure that all assets are utilised in furtherance of the business of the stock exchange.
Power to make regulations: The Commission, may, by notification in the official Gazette, make regulations for carrying out the purposes of this Act.
Power to give directions: (l) The Commission shall have the power to give such directions to a stock exchange, either jointly or severally, or to a shareholder, or a committee member, or a TRE certificate holder as the Commission deems necessary for achieving the purposes of this Act.
(2) The stock exchange, shareholder, TRE certificate holder or committee member to which a direction is issued under this section or any other section of this Act shall be bound to comply with the same and failure of a stock exchange, shareholder, TRE certificate holder or committee member to comply with any such direction shall be an offence under this Act.