The Cabinet has not given go-ahead signal to the Securities and Exchange Commission of Pakistan (SECP) for taking action against stock exchanges, brokerage houses or shareholders, according to the provisions of the Stock Exchanges (Corporatisation, Demutualisation and Integration) Ordinance, 2007, official sources told Business Recorder.
The SECP, in Article 27 of the Ordinance had proposed that it should be empowered to remove the hurdles in the implementation of the SECP Ordinance. Some members of the caretaker Cabinet, while discussing the issue on January 22, were not in favour of giving clean chit to the SECP for arbitrary powers.
After detailed discussion, the Cabinet decided that the word ''Commission'' should be replaced with the words ''federal government''. The SECP claims that, with the implementation of the Ordinance, the management of stock exchanges would be free from undue influence of the brokers as the shareholding structure of the stock exchanges is 40 percent members, 20 percent general public and 40 percent with strategic investors/financial institutions, sources said.
During discussion, concern was expressed regarding domination of a single strategic investor, which could acquire 52 percent shares of local stock exchanges.
Responding to the concern, the SECP clarified that any strategic investor, or financial institution, could purchase 40 percent shares, but acquiring of further shares up to 51 percent would only be possible if the investor would meet the conditions laid down in sub-sections 2 and 3 of section 13 of the proposed Ordinance, which provides adequate safeguards against dominance of any strategic investor or entity.
A suggestion was floated that either a subcommittee be set up to further examine the proposed Ordinance or the Cabinet of the elected government should consider it, but this suggestion did not find favour of the majority of the members due to the importance of the law aimed at improving the stock exchanges governance structure.
While deliberating upon the provisions of the Ordinance, a query was raised that, out of 20 stock exchanges so far corporatised worldwide, how many have one strategic investor holding 51 percent shares, the Cabinet was apprised that there were cases where 100 percent shares had been acquired by the strategic investors eg London Stock Exchange (LSE) acquired 100 percent shares of Italian Exchange.
It was further clarified that SECP''s consent would have to be obtained for further acquisition of the shares and induction of a strategic investor was stated to be of utmost importance to have infusion of technology and management expertise, sources added.
Some members were of the view that since the demutualised Asian stock exchanges were not making much profit, why the SECP was so enthusiastic about such a concept. The SECP argued that focus of the Ordinance was primarily on improvement in the governance, and not on profit making. However, sources said that the proposed Ordinance would be promulgated this week, after the SECP receives the minutes of the Cabinet.