India will introduce the concept of Securities Investor Protection Corporation (SIPC) in near future and the Securities and Exchange Commission of Pakistan (SECP) has proposed setting up of the 'SIPC' through an independent law to handle investors' complaints in case brokerage houses default.
A senior SECP official told media here on Thursday during an interactive capacity-building session on 'An overview of regulatory reforms in the stock market' and 'new dimensions of corporatisation regime' organised by the SECP. Commissioner Securities Market Division (SMD) of SECP Zafar Abdullah and Tariq Naseem Deputy Director SMD briefed the participants on the working of the stock exchanges, Central Depository Company and National Clearing Company of Pakistan Limited. The SECP Chairman Tahir Mehmood was also present.
SECP officials said that the Commission wants to establish 'Securities Investors Protection Corporation' for safeguarding interest of general investors of the stock exchange and to ensure timely payment of their claims in case of brokerage houses default. The practicable idea of the 'Securities Investors Protection Corporation' has been taken from the USA where the corporation has been successfully working for the protection of investors. The concept of SIPC exists in many countries like USA, China and Malaysia which is usually implemented through specialised legislation to enable the SIPC to create recourse on the assets of defaulting brokerage house in favour of clients.
The setting up of SIPC would maintain an adequate pool of funds to compensate investors to the maximum extent in the event of default of their broker/custodian. In developed jurisdictions, the concept of SIPC is recent phenomenon to recover investors' losses in stock market due to unfair trade practices of brokers. In near further, India will set up the SIPC. The SECP officials also explained that the commission will start working from July 2014 to offer investors an opportunity to settle their accounts directly through the Central Depository Company and National Clearing Company of Pakistan Limited. This would be done to ensure protection of investors and eliminate the chances of misappropriations of customer assets by brokers. The new product will also bring increased efficiency and transparency to the clearing and settlement process by eliminating the need for investor to open a sub-account with a broker.
The second initiative is the proposed direct settlement services by NCCPL whereby it will act as the custodian and clearing agent of the investor. Sharing major future plans, the SECP said it is bringing improvement and introduction of new corporate laws for regulation of securities market, futures trading registration and regulation of market intermediaries. The SECP is also introducing post-demutualisation reforms in stock exchanges such as bringing in strategic investors and self-listing of stock exchanges, separation and regulatory functions and integration of three stock exchanges.
The diversification of product portfolio of commodities market including exploring options to introduce Shariah compliant commodity futures contracts is also under process. The SECP is developing new products and systems such as listing and trading of stock options, cross listing of foreign and domestic indices at Pakistani and foreign stock exchanges, activation of the market for Exchange Traded Funds (ETFs) and boosting activity in the index futures market.
The commission is developing debt capital market for both government and corporate debt securities particularly expanding investor base and providing a trading platform catering needs of all participants. The SECP also proposed establishment of a Brokers' Association to provide an effective platform for the stock broking community to voice their concerns to the government and regulatory bodies and ensure professional training and exposure to the intermediaries while creating awareness among them about capital market issues. The SECP will also introduce new regime for Islamic Capital Market with appropriate legal and regulatory framework, products and services to address investment needs of investors' in compliance with Shariah principles, SECP officials added.
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