KARACHI: The Competition Commission of Pakistan (CCP) has approved integration of Islamabad, Lahore, and Karachi stock exchanges, while imposing conditions to remedy certain competition concerns. The Phase II Review order has been issued by a bench, comprising Vadiyya Khalil, Chairperson, Mueen Batlay, Member (Mergers & Acquisitions), Shahzad Ansar, Member (OFT & Advocacy), and Ikram Ul Haque Qureshi, Member (Cartels & Trade Abuse, and Legal). According to the judgment, the CCP has undertaken a comprehensive competitive analysis of the merger to determine if it substantially lessens competition by creating or strengthening a dominant position. With respect to the vertical effects, the commission has held that until the divestment of 40 percent of the post-merger Pakistan Stock Exchange’s (PSE) shares to a strategic investor is carried out, the brokers transferring from the LSE and ISE remain vulnerable to biased treatment at the hands of the KSE shareholders. Another concern the commission has identified is the effect the merger might have on the Central Depository Company (CDC) and National Clearing Company of Pakistan Limited (NCCPL). The commission has found that the integration of the exchanges will not lead to elimination of an important or effective competitor from the market. The order states that the unification of trading on one platform will instead improve the liquidity of the markets as a whole. The CCP noted that the companies listed on the LSE and ISE will be deemed listed on the PSE upon its creation, without any additional cost or regulatory requirements, which would create efficiencies. The CCP judgment also said that if at any time in the post-merger scenario, the commission finds the integrated exchange to be engaging in abuse of its dominant position, it has the power to penalise the undertaking and rectify such a situation. With regard to the new entry by brokers, the order emphasises that the Base Minimum Capital (BMC) requirements to be set by the Securities and Exchange Commission of Pakistan (SECP) must not be onerous in comparison to the existing requirements and should be in line with the international best practices. The commission also highlighted some lesser competition concerns vis-à-vis potential discrimination of shareholder and non-shareholder brokers and listing of new companies. The merger has been approved subject to the conditions that the PSE will carry out the divestment of 40 percent of its shares to a strategic investor within a year of the date of integration; that the sale of 20 percent of the shares of the PSE to the public will also be carried out within the timelines specified, and that more than 50 percent of the directors on the board of the PSE will be independent and would be nominated / approved by the SECP until the divestment is made to the strategic investor. Furthermore, the commission has stipulated that the PSE will establish an SME counter within a year in order to facilitate smaller new companies to get listed on the exchange. The CCP has also recommended that the SECP should facilitate the entry of new exchanges to the market as and when it may be deemed appropriate. Moreover, the new financial requirements being specified in the Securities Brokers Regulations, 2015 must not be burdensome for the existing brokers and the SECP should ensure that any new exchanges entering the market are provided due access to the clearing and settlement functions, irrespective of the shareholding of the PSE in CDC and NCCPL.
