The Securities and Exchange Commission of Pakistan (SECP) has strongly proposed an annual renewal fee for the securities exchanges under the draft Securities Bill 2010 to keep an effective check on bourses due to involvement of huge public money in stock business.
The issue of annual fee for the stock exchanges was discussed threadbare during the National Assembly Standing Committee on Finance with Fauzia Wahab in chair here on Wednesday. Members of the committee strongly objected to the language of the proposed amendment in the draft Securities Bill to collect annual renewal fee from the stock exchanges and apprehended that the renewal of stock exchange licenses on an annual basis by charging fee would give discretionary power to the commission to accept or reject renewal of exchanges.
A detailed discussion took place on this specific amendment and several drafts of proposed amendments on the annual renewal fee of securities exchanges were prepared by the SECP/Law Division in the light of observations of the committee members. Later, the committee members, Law and Justice Division and SECP officials mutually agreed on a new provision for charging annual fee from the stock exchanges. The rationale behind the proposed amendment is to collect annual fee only from stock exchanges. The powers to cancel licenses of the exchanges is already available to the regulator, SECP officials explained to the committee.
Chairman Securities and Exchange Commission of Pakistan (SECP) Muhammad Ali informed the committee that the proposed amendments in the draft Securities Bill 2010 had been duly cleared by the Ministry of Finance. The proposed fee would be charged from the exchanges in lieu of services provided by the regulator to the exchanges. It is merely a fee that the SECP would charge against services provided by the commission to the exchanges.
The stock exchanges have to fulfil the continuous compliance requirements and submission of annual renewal fee would enable the SECP to regulate the exchanges in a better way. A defined criteria has to be followed by the exchanges for renewal of licenses. The period of annual fee for the securities exchanges could be extended from one to 2 or 3 years, depending on the recommendations of the committee. The SECP had a lot of internal debate on the issue of renewal fee with the Ministry of Finance as well as Law and Justice Division.
At present, Central Depository Company (CDC) and National Clearing Company are paying annual fee and the system is working very smoothly without any problem. The licenses of the non-banking financial institutions are also being renewed. Globally, such fee has been charged by the regulators from the stock exchanges in many jurisdictions. The SECP has also analysed various jurisdictions and adopted the best practice of charging annual fee from the stock exchanges.
As a lot of public money is involved in business at the stock exchanges, there are chances of its misuse and subsequently the SECP has proposed annual renewal fee on the stock exchanges to effectively regulate and monitor the prescribed requirements and regulations by the exchanges. The SECP needs to be stringent as it has not yet developed financial regulations for stock exchanges as compared to other jurisdictions for its proper monitoring.
Another SECP official explained that the annual renewal fee had been collected in India. Similarly, such kinds of fee also exists in Sri Lanka and various other jurisdictions, according to the official. Some of the committee members were of the view that it was a very major change in the renewal of licenses for the stock exchanges.
MNA Shahnaz Wazir Ali said she had no problem with the fee, but she objected to the proposal on linking it with the renewal of license of the stock exchanges. MNA Abdul Rashid Godal also objected to the language of the amendment pertaining to the annual renewal fee for securities exchanges. Other members of the committee also actively participated in the discussion on the renewal of licenses of stock exchanges and payment of annual fee by these entities.
Sharing the proposed amendments in the draft Securities Bill 2010, SECP Chairman read out an amendment: "The securities exchange license shall be granted subject to the annual renewal fee". Following observations raised by the committee members on the language of the proposed amendment another draft was put forth which said, "a stock exchange license shall be granted, subject to such annual renewal fee as may be prescribed". This proposed amendment was also not accepted by the committee members.
When the representative of the Law Division proposed that a proviso should be added to the proposed amendment that the license of the stock exchanges would not be cancelled or revoked only on the basis of annual renewal fee, the same was not accepted by the committee.
In view of the repeated objections to the proposed amendment by the committee members, the SECP Chairman observed that the word, "granted" could be excluded form the proposed amendment "in case the committee directs to the commission." Another proposed amendment was redrafted during the committee's proceedings which says, "subject to the provisions of this Act, a securities exchange will pay an annual fee as may be prescribed".
During this process, another drafted amendment was discussed, which says, "subject to the provisions of this Act and payment of an annual fee as may be prescribed, the securities exchange license shall be granted for a continuous period". The SECP Chairman said that there was no need to write the words "continuous period" which, according to him, would change the meaning of the proposed amendment.
A consensus was developed among the committee members, SECP and Law Division on the redrafted proposed amendments, which says: "The license granted under this section shall be subject to the provisions of the Act and payment of annual fee as may be prescribed". This rephrased amendment would be analysed by the legal experts of the SECP and Law Division for finalisation of the renewal fee for stock exchanges.