Bourses will not be allowed to issue TRE until December 31, 2015: Cabinet to approve amendments today

The Cabinet which is scheduled to meet on Wednesday (today) with Prime Minister Raja Pervez Ashraf in the chair will approve new amendments to the Stock Exchanges Corporatisation, Demutualization and Integration Act, 2012, according to which bourses will not be allowed to issue Trading Rights Entitlement (TRE) until December 31, 2015, unless two-third majority of TRE certificate holders of a stock exchange decide otherwise.
Previously, the government had decided that a stock exchange shall not issue new TRE certificates to any person until June 30, 2010 unless two third majority of TRE certificate holders of a stock exchange decided otherwise. Demutualization is the process of converting a non-profit, mutually owned organisation to a for-profit entity owned by the shareholders.
In the context of stock exchange the Demutualization process involves not only corporatisation, which is conversion of a stock exchange limited by guarantee into one limited by shares but also segregates ownership and trading rights. Hence, Demutualization brings balance in interest of different stakeholders in the corporate and governance structure of a stock exchange. The draft Stock Exchanges (corporatisation, Demutualization and Integration) Act, 2012 was approved on March 27, 2012 in a joint session of the Parliament, and received assent of the President of Pakistan on May 07, 2012.
The Act was drafted in consultation with the stakeholders and signing of a Memorandum of Understanding (MoU) between the Securities and Exchange Commission of Pakistan (SECP) and Karachi Stock Exchange. The MoU provides for maintaining a moratorium period in relation to issuance of new trading rights and time line for issuance of a fixed number of trading rights for a certain time period. This understanding was covered in section 16(4), 16(5), and 16(6) of Stock Exchanges (Corporatisation, Demutualization and Integration) Act, 2012.
The sources said the dates provided in the sub-sections 16(4), 16(5), and 16(6) of Stock Exchanges (Corporatisation, Demutualization and Integration) Act, 2012 were drafted on the supposition that the Bill would be enacted in normal course at an earlier date. Now with the passing of the Act in 2012, these sections have become ineffective as the commencement of the time lines has lapsed. Therefore, in order to make these sections effective, it is necessary to amend sub-sections 16(4); 16(5) and 16(6) of the Bill.
The Stock Exchanges Corporatisation, Demutualization and Integration Act, 2012, trading rights: An initial shareholder who is issued a Trading Rights Entitlement (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. Provided that such TRE certificate holder shall commence business not later than six months from the date of registration as a broker.
1- A TRE certificate issued under section 5, may only be transferred once in a manner as may be prescribed.
2- 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 date of acquiring the TRE certificate.
4- A stock exchange shall not issue new TRE certificates to any person until December 31, 2015 unless two-third majority of TRE certificate holders of a stock exchange decide otherwise.
5- After December 31, 2012 till December 31, 2025, a stock exchange shall offer for issuance fifteen TRE certificates each year in the manner prescribed by the Commission.
6- After December 31, 2025 no restriction shall be placed on the issuance of TRE 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 three years 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.
11- 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.