Securities and Exchange Commission of Pakistan (SECP) Chairman Zafar Abdullah has said that a strong linkage needs to be established between the real economy and the capital market to develop the bond market in the country. The SECP chairman shared the future outlook of the SECP in the annual report-2017 released Friday.
In the report, Zafar Abdullah said that they need to introduce products like equity derivatives, interest rate derivatives, agricultural commodity derivatives, electronic warehouse receipt finance, etc. Such products would develop the real economy and increase access to finance and improve price risk management. With a contemporary legal framework and a revised structure in place, the SECP has the right platform and momentum to steer Pakistan towards a brighter future.
The SECP needs to support the growth of agricultural produce companies by engaging with all relevant stakeholders to create a comprehensive and modern policy framework. This will allow it to play pivotal role in the development of the entire agriculture value chain. It is expected that the new measures will aid in growth and employment, documentation of the economy, building a connection between real economy and capital markets and increasing tax revenues.
He said that the SECP needs to focus on creation of new departments within the SECP to facilitate horizontal growth, which would help achieve a greater depth of effectiveness in fulfilling the agenda, meeting the significant needs in terms of technology and manpower capacity building, which is a natural consequence of horizontal growth and a closer interaction with regulated sectors in a proactive and business friendly manner.
In the last three years, there have been many legal reforms and the SECP needs to educate its regulated entities by creating awareness about these laws through different forums such as conferences, seminars, media, etc. The incorporation rate needs to be increased by bringing the unregistered entities in the corporate net thus propelling the economy towards corporatisation. Furthermore, efforts are also required for introducing tax incentives by the government for encouraging corporatisation, Zafar Abdullah said.
The financial results of the SECP for 2016-17 showed surplus of income over expenditure after tax Rs 416 million as against last year's Rs 254 million, registering an increase of Rs 162 million (63%) over the last year. According to the details shared by Zafar Abdullah in its annual report-2017 released here on Friday, total revenues (net of levies) for the financial year 2016-17 are Rs 3,048 million which are higher by Rs 374 million (14 percent) as compared to last year's revenue of Rs 2,675 million.
The total operating expenses for the year under review were Rs 2,482 million, showing an increase of Rs 224 million (10 percent) over the previous year mainly due to hiring against vacant positions and other operating expenses. Capital expenditures for the year remained within the approved budget for the year. An amount of Rs 19 million received as penalties by the SECP during the current year has been deposited in the Federal Consolidated Fund.
He said that during the year, the NBF sector grew by 29 percent from Rs 925 billion to Rs 1,190 billion. Mutual funds, pension funds and separately managed accounts witnessed substantial increase in their assets. Of these, the assets of private pension funds grew by 37 percent during the year. This notable growth is attributed, among other things, to conducive regulatory and fiscal framework. During 2016-17, two new leasing companies were incorporated. Moreover, the declining trend in asset size of investment banks and leasing companies witnessed a reversal.
Following the risk-based approach, seven AMCs and one leasing company were inspected during the year, covering 48 percent of the NBFCs and Modaraba sectors. Based on the violations and observations reported in the offsite and onsite inspection reports, 12 show cause notices and orders, 37 warnings, and 299 compliance related letters were issued to the entities to enhance level of discipline and compliance with the NBF sector.
The insurance industry in Pakistan continued to exhibit the modest growth of 14 percent in gross direct written premium (GWP), whereas an 18 percent growth in total assets was recorded during the year ending December 31, 2016. The sector possesses huge potential for expansion and growth due to the large untapped market on the life insurance side and exploiting the economic opportunities brought by CPEC on the non-life insurance sector.
The SECP, after thorough review of the proposed life insurance products by the life insurance companies, granted 113 approvals for launch of new life insurance products. On the policyholder grievance resolution side, the relief of Rs 39.3 million was provided to the aggrieved policyholders who had filed complaints with the SECP during the year, Zafar Abdullah said.
The SECP chairman said that the development agenda for the capital markets was primarily based on promoting sustainable and orderly growth of the capital market while maintaining its commitment to implementing a robust regulatory regime. Accordingly, the SECP commenced implementation of various key structural and developmental initiatives under the umbrella of its 3-year Capital Market Development Plan (2016-18) from July 1, 2016. Under the plan, the SECP took a number of initiatives and groundbreaking steps, which will go a long way in creating an ideal environment for attracting foreign investment, energizing the capital markets, creating a level playing field for investors, improving access to finance and promoting ease of doing business.
These steps are part of a reform roadmap designed to strengthen the SECP's regulation and enforcement regime, facilitate quality listings, encourage investment and enhance monitoring and surveillance for timely detection of misconduct and unfair practices and inculcating zero tolerance for market abuses.
Owing to these reforms and initiatives and the positive macroeconomic conditions, the capital market witnessed improved investor confidence and resultantly, Pakistan was able to regain the prestigious status of MSCI's Emerging Markets Index in 2017 - after a gap of nine years - opening its doors to new global investors and institutions.
Furthermore, post-divestment of strategic stake of the country's unified securities exchange -Pakistan Stock Exchange - to strategic investors, public offer of 20% of its shares was successfully completed as per legal requirements. With commencement of formal trading of the PSX shares on its trading platform, PSX has earned the distinction of becoming the first South Asian self-listed stock exchange. Self-listing of the exchange is envisaged to curtail conflict of interest, ensure integrity of trading and compliance of the exchange with legal requirements.
In order to address systemic risk, the SECP set up the Systemic Risk Department on November 1, 2016. In light of its recommendations, the SECP introduced significant measures to strengthen risk management at the clearinghouse for the securities exchange and for asset management companies. In collaboration with the State Bank of Pakistan and Ministry of Finance, the SECP also started its efforts to establish the Financial Stability Council to holistically address systemic risk and market stability across the financial sector, the SECP chairman added.
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