SECP approves framework for ‘Direct Listing’ at PSX

The Securities and Exchange Commission of Pakistan (SECP) has approved a framework for ‘Direct Listing’ of companies at the Pakistan Stock Exchange (PSX), marking a step towards increasing market capitalisation, and reducing the role of intermediaries in the process.

The SECP said on Friday that the framework, finalized after thorough consultation with the PSX and other stakeholders, will be part of the stock exchange’s rule book.

“In continuation of its efforts for an enabling eco-system to improve capital formation in the country, SECP has approved framework for Direct Listing of companies at PSX,” read the statement by SECP.

The markets regulator elaborated that direct listing, unlike conventional offerings, is a process whereby a company can get listed on the stock exchange by selling existing shares to accredited investors, existing shareholders, and specific category of investors, without the mandatory appointment of intermediaries.

Currently, a company that intends to go public has to involve an investment bank that helps determine the company value, and advises on an opening share price. The process includes hiring financial advisors, conducting road shows to develop public interest, and then incurring a fees for all the services at each step of the listing process. An additional requirement could be of underwriting, which involves a guarantee by the investment bank that it will buy the shares itself if they are left unsold at the end of the listing process.

However, the SECP’s initiative looks to curtail the role of intermediaries, potentially reducing the cost of pre-listing. Market followers, however, say this will pose new challenges as well.

Meanwhile, the SECP added that the move will further simplify the listing of companies at the PSX. It informed that any public limited company having a minimum paid-up capital of Rs200 million and audited annual accounts for two preceding years can apply for the direct listing.

However, the companies would be required to ensure post-listing compliance, like all other listed companies at the exchange.

Last month, the SECP introduced the concept of ‘direct listing’ of companies. “Direct listing is a concept which is there in developed markets already,” SECP Chairman Aamir Khan had said. “It’s something on our internal drawing board right now.”

Back then, the SECP stated that the objective is to facilitate the listing of companies, especially State-Owned Enterprises (SOEs), and to promote a culture of good governance among the corporate sector.

The SECP added that it is continually striving to develop a vibrant, fair, and efficient regulatory framework in Pakistan, designed to foster the growth of capital markets, promote healthy competition and ensure investor protection.