SECP undertakes major reforms to rejuvenate capital market, promote ease of doing business

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) is closely monitoring the ongoing stock market situation and in a short span of time has managed to introduce a multifaceted reform agenda for the capital markets and corporate sector through extensive efforts.

According to an SECP press release issued here Saturday, in order to ensure better coordination and encourage involvement of the stakeholders in the market reform process, the SECP chairman held back-to-back meetings with key market participants, practitioners, heads of leading corporate and financial institutions prior to rolling out its reform package.

"The reforms undertaken by the apex regulator aim to bring stability to the market, attract liquidity, facilitate ease of doing business, revitalize development of the market and restore investor confidence without compromising on the principles of sound risk management and investor protection," the press release said.

Under the reforms, the SECP said brokers complying with certain conditions were now allowed to pay interest on subordinated loans taken from their directors, sponsors or substantial shareholders.

The SECP also introduced risk management reforms for enhance trading capacity of market participants, amendments approved to NCCPL regulations for discontinuing the 10% additional margins being collected from brokers and the 10% additional haircuts being applied by NCCPL on margin eligible securities, the revision in slabs of liquidity margins, which would now be applicable only on large exposures of brokers, and to manage risks, credit rating had been added while implementing the revised slabs.

The SECP introduced Murabaha Share Financing Regulations and granted approval to allow leverage financing in Shariah compliant securities.

Minimum brokerage commission to address anomalies, encourage market development and support commercial viability of brokerage industry, instructions had been issued to PSX for formulating regulations relating to minimum brokerage commission, it added.

The SECP had also under taken initiatives to resolve issues with biometric verification of stock market investors after extensive coordination between the SECP and NADRA. NCCPL advised to proceed in line with the NADRA instructions.

Unblocking of PSX shares: To enable efficient utilization of broker assets, shares held by brokers as shareholders of PSX, which were previously blocked had been unblocked.

As regards the broader corporate sector, the SECP in an endeavour to align corporate governance regime with global best practices and to facilitate ease of doing business, considered shifting from rule based corporate governance framework towards a combination of mandatory practices and recommended practices i.e. “comply or explain” approach.

The SECP after extensive deliberations and consultations had exempted applicability of International Financial Reporting Standards (IFRS) 9 in respect of debts due from government to power supply chain companies for a limited period of three years i.e. till June 30, 2021.

The SECP had also extended earlier exemption from IFRIC 4, now IFRS 16 to all companies, which had entered into power purchase arrangements before January 01, 2019.

The said exemptions were made in light of concerns expressed by companies regarding practical limitations in their applicability.