Secretary Finance Dr Waqar Masood has said that stock exchanges are moving towards integration under a demutualization plan, as all investors should have the facility to trade through a single exchange, ie, Karachi Stock Exchange (KSE).
While reviewing the draft Securities Bill, 2015 at Senate Standing Committee on Finance here on Tuesday, the Secretary Finance said that Ministry of Finance has been actively engaged in consultation with all the stakeholders for fixing capital requirements of stock exchanges under the demutualization law. Stakeholders who would be affected by the draft Securities Bill, 2015, have been consulted.
He said there is no need for Lahore Stock Exchange (LSE) and Islamabad Stock Exchange (ISE) under the demutualizaton of exchanges plan. There should be only one stock exchange for buying and selling of shares on the bourses. Everyone should have the facility to trade through a single exchange. At present, investors are directly trading through the KSE.
Chairman SECP Zafar Hijazi endorsed the viewpoint of Secretary Finance by saying that investors of Lahore and Faisalabad are also trading through the KSE. People are engaged in online facility of booking orders. Senate Standing Committee on Finance and Revenue in its meeting held at the Parliament House discussed the draft Securities Bill, 2015, with the representatives of the Securities and Exchange Commission of Pakistan (SECP) and Ministry of Finance. The Committee discussed various provisions of the draft Bill at length, including comments of the Committee members.
Regarding eligibility criteria for registration of securities exchanges (or for opening a new stock exchange) contained in the proposed bill, it was explained in response to a query that the number of securities exchanges in a country is determined by the business needs and fulfilling the laid down criteria. A facilitative environment for integrating stock exchanges in Pakistan is therefore provided in the Demutualization Act. Integration is a business decision of exchanges and has to be in accordance with the process provided in the Law.
The Committee appreciated SECP's efforts towards drafting the said Bill in line with international practices. The committee reviewed the amendments in the Securities Bill, 2015, proposed by Chairperson of the committee Senator Nasreen Jalil and agreed to some of the viable proposals. The proposals relating to the insider trading was not accepted.
On a major proposed amendment to increase the minimum paid-up capital for setting up stock exchange from Rs 500 million to Rs 1000 million, SECP officials responded that the minimum paid-up capital requirement has been made based on the best international practices. It is the responsibility of the state to provide an equal opportunity to make investment in stock exchanges.
SECP officials informed the committee that the SECP will provide a definition of small shareholders in the draft Securities Bill, 2015. The committee accepted the proposal regarding Regulated Securities Regulations. It is recommended that the appointment and role of the Trustee appointed on behalf of holders of the securities (such as TFCs and Sukuks) be specifically covered under this clause. Senator Saleem Mandiwala has also proposed comprehensive amendments in the draft Securities Bill, 2015.
Responding to a query, the SECP officials said that blank selling is prohibited under the law. However, short selling is permitted under the laid down parameters. The SECP officials explained that there are major shortcomings in the Securities and Exchange Ordinance, 1969, which need to be replaced with Securities Bill 2015, as the SEO 69 has no provision for system audit of stock exchanges; Commission''s intervention powers for investor protection and regulation for clearing houses, etc.
The SECP was established under the Securities and Exchange Commission of Pakistan Act, 1997 as an independent statutory body for the regulation of capital market and control of corporate entities.
Presently, SECP regulate securities market under the Securities and Exchange Ordinance, 1969 (SEO 69). SECP feels that the law remains fundamentally incomplete, lacks a proper and logical structure and suffers from numerous inconsistencies and gaps. The SEO 69 is a very rudimentary legislation that started life basically as a stock exchange law and has been considerably extended by amending the law over the years. However, these amendments have been done very much on an ad hoc basis without due regard to the overall structure and further drastic change, which is undoubtedly essential, cannot be achieved by additional amendments.
To remove deficiencies and gaps from SEO 69, introduce international best practices and incorporate the International Organisation of Securities Commission principles of securities regulations, it is important that SEO 69 be repealed and replaced with a comprehensive modern and all-encompassing piece of a Securities law. Accordingly for effective regulation of securities market and for enhanced protection of investors and public in general, the SECP after a detailed consultation with key stakeholders has drafted the Securities Bill, 2014, they said.
Major deficiencies in the SEO 69 reveal that the law lack of provisions regarding duties of securities exchange and system audit of securities exchanges; emergency powers of the Commission in relation to securities exchanges, central depository and clearing houses; the regulation of clearing houses, eligibility criteria for clearing house and central depository, duties of the clearing houses and central depository; handling of investor complaints; standard of business conduct and financial resources of regulated persons; powers of intervention by the Commission; power to call for information; and recovery of penalties.
The salient features of the Draft Securities Bill 2014 reveal that the draft Securities Bill consists of fifteen Parts and one Schedule. Under the proposed law, the provisions dealing with the eligibility criteria for registration of securities exchanges, central depository, clearing house, their duties, system audit, accounts and annual reports. The comprehensive disciplinary process with full range of penalties with grounds specified for the suspension and revocation, against members of a securities exchange, central depository, clearing houses.
The new law covers a comprehensive disciplinary process with full range of penalties with grounds specified for suspension and cancellation of the licence of a securities exchange or a central depository; licences of clearing houses and other punitive actions and emergency powers of SECP in relation to securities exchanges, central depository and clearing house for protection of investors and public in general.
There are detail provisions relating to eligibility criteria for registration/licensing of Regulated Person including (Brokers, Underwriters, Ballotters, Transfer agents, etc); fit and proper criteria; duties of regulated person and disciplinary actions by the SECP; provision on Public Offer of securities; provisions regarding takeovers including the power of the Commission to make detailed regulations with respect to making and conduct of takeovers; detail provision relating to supervision and investigations- enable the Commission to call for information, conduct inspections and investigation; powers of the investigator in relation to investigations. Furthermore, detail provisions on market offences including insider trading and other market offences with penalties; detail provisions on prosecution process and power of intervention by the SECP in relation to securities exchanges, central depository, clearing houses and Regulated Person (brokers, underwriters, transfer agents, balloters etc it includes powers of SECP to intervene in the activities of the licensed person in the interest of the customer or public or if they have contravened or failed to comply with any provision of the Act, any rule, or any regulation made under the Act.
The proposed law also contains provisions in relation to appeal and recovery of penalties imposed by the SECP under this Act for enhanced protection of investor; the SECP powers have been extended by providing appropriate powers to issue directions to securities exchanges, central depository and clearing houses. Power of the SECP to make regulations and a Schedule providing lists of enactments and the extent of their repeal on the coming into force of the law, the SECP officials added.