Securities and Exchange Commission of Pakistan (SECP) Monday introduced new brokers regime for securities brokers by dividing brokers into three categories i.e. 'Trading Only', 'Trading and Self-Clearing' and 'Trading and Clearing' category with minimum net worth and net capital balance requirements for each of the categories.
The SECP has notified SRO 26 (I)/2020 to issue draft amendments to the Securities Brokers (Licensing and Operations) Regulations, 2016 here on Monday.
Under the categorization of securities brokers, the application for license under these regulations may be made for any one of the following categories of securities brokers:
One, "Trading Only" category shall mean that a securities broker can only execute its proprietary trades and trades on behalf of its customers but cannot settle executed trades or keep custody of securities or money owned by it and its customers.
Two, "Trading and Self-Clearing" category shall mean that a securities broker can execute as well as settle its proprietary trades and trades executed on behalf of its customers and can keep custody of securities and money owned by it and its customers subject to such conditions as may be imposed by the Commission.
Three, "Trading and Clearing" category shall mean that a securities broker can execute as well as settle its proprietary trades and trades executed on behalf of its customers and can keep custody of securities and cash owned by it and its customers subject to such conditions as imposed by the Commission and, in addition, such securities broker can settle trades of other securities brokers and their customers and keep custody of the securities and cash owned by such other securities brokers and their customers.
Securities brokers already licensed under these regulations shall be required to convert to any one of the categories mentioned through submitting an application for conversion to a specific category on or before April 15, 2020 along with an affidavit that securities broker shall comply with the financial resource requirement of the respective category till June 30, 2020.
Provided that from the date of application under sub-regulation (2) any securities broker which has applied for the Trading Only category shall not open accounts of any new customers till the time it transfers its clearing, settlement and custody functions within a transition period, the SECP said.
Under the new brokers regime, a securities broker licensed under these regulations, which does not comply with financial resource requirements for Trading and Self-Clearing category specified under these regulations, shall apply for conversion to "Trading Only" category by April 15, 2020, subject to compliance with financial resource requirements of the respective category, and shall be required to transfer its clearing, settlement and custody functions till August 31, 2020 or such extended date as may be specified by the Commission.
The SECP said that an applicant for a license as a securities broker shall comply with and ensure ongoing compliance with minimum paid-up capital and net worth of Rs 35 million and net capital balance of Rs 5 million. Provided that from July 1, 2020 the financial resource requirements as provided shall be applicable on securities brokers.
Provided further that existing securities brokers who are non-compliant with the prescribed financial resource requirements in respect of paid up capital and net worth, shall be deemed compliant with the financial resource requirements till July 1, 2020 subject to submission of application for conversion to new category of securities brokers.
With effect from July 1, 2020, each securities broker shall be required to comply with and ensure ongoing compliance with the following levels of minimum net worth and net capital balance for each category: category of securities broker, Trading Only, minimum net worth Rs 15 million and minimum net capital balance (not applicable); Trading and Self Clearing category, minimum net worth of Rs 100 million and minimum net capital balance Rs 10 million, and Trading and Clearing category, minimum net worth Rs 500 million and minimum net capital balance, Rs 15 million.
Provided that the minimum net worth requirement for Trading and Self Clearing category shall be increased to Rs 125 million with effect from July 1, 2021.
Provided further that a securities broker with minimum net worth of Rs 250 million, which is a subsidiary of a bank with minimum long term credit rating of AA- and is compliant with the minimum capital requirements of the State Bank of Pakistan, may be issued license for the Trading and Clearing category if it is in compliance with all other conditions applicable on the Trading and Clearing category.
The SECP said the securities brokers which obtain license under Trading and Self Clearing or Trading and Clearing category shall be permitted to retain custody of proprietary and customer assets as follows:
Category of securities broker, Trading and Self Clearing (assets under custody limit i.e. 25 times of net worth of securities broker) and Trading and Clearing (assts under custody limit i.e. 35 times of net worth of securities broker).
The SECP said that where a Trading and Clearing category securities broker, which is keeping custody of the securities and cash owned by other securities brokers and their customers, is facing difficulty in complying with the asset under custody limit, the Commission may, on an application made by such Trading and Clearing category securities broker to the Commission, enhance the asset under custody limit for such securities broker to such number of times of net worth of such securities broker as deemed appropriate by the Commission on case to case basis, subject to specified conditions.
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