Two brokerages seek cancellation of PSX trading licences

SECP’s tough regulations

KARACHI: Two brokerages have asked the Pakistan Stock Exchange (PSX) management to cancel their trading licences as they couldn’t comply with the new regulations introduced to pave the way for the PSX’s entry into the MSCI Emerging Market Index.

Amin Tai, a senior member and a top-10 broker on volumes and another broker whose name was not disclosed, have surrendered their trading rights entitlement certificates (TRECs) to the management. 

“At least 15 more members would be surrendering their memberships in the coming days because of the SECP’s regulations,” a top broker told The News on condition of anonymity.

Tai was handling a very narrow number of investors. His family has been in the brokerage business since the formation of the stock exchange. His late father Essa Tai and late brother Younis Tai also remained in this business. 

The broker Tai, however, said his TREC surrender was due to personal reasons. 

“In fact, compliance is not the issue,” he said. “I surrendered on personal reason. I am too old to continue and brokerage business is a risky business.”

He said that his sons were not ready to take over the brokerage house. He added that he would continue his property business. 

Amin Tai Securities has around 10 clients with longer holdings of around five years. Majority of his clients are institutions. 

An analyst said a new regulation, stipulating a brokerage house to declare itself as a public company if its revenue surpasses Rs100 million, is difficult to be complied. 

The analyst said the members do not want to share information about their family business with anyone. There is also a requirement of appointing at least three independent directors if there is an investment of Rs100 million in the brokerage.

An insider said a majority of small brokerage houses, who are facing hardship in compliance, were discussing about giving up their licences and continuing securities trading as investors of other brokerage houses.

The requirement of taking mandatory certification for all the traders of the brokerage houses from the Institute of Capital Markets is another challenge for the brokers.

Nadeem Naqvi, managing director at PSX said the two brokers submitted applications for the cancellation of their licences.

“Regulatory regime requirement is getting tough,” Naqvi said. But, he added that the regulations are needed to pave the way for PSX’s entry into the Morgan Stanley Capital International (MSCI) Emerging Market Index. The Geneva-based MSCI will conduct its ‘2016 Annual Market Classification Review’ in June this year.  Analysts said there is a bright chance of the PSX’s reclassification to emerging market status.

Naqvi said there are two options for those brokers, who keep very small number of investors and rather are major investors by themselves, under integration of all three stock markets early this year. “They can go for merger or go out of the market after 12 months of the integration,” he added. “We have set mindset for stocks to grow. I want them to become more professional. Market needs professionalism to increase the investor base.”

Naqvi said the PSX has so far invested Rs75 million on the development of the internet trading system. He added that it is providing free terminals to brokers, “but they are reluctant to adopt it.” Brokers from Islamabad and Lahore are adapting to the new model.

Naqvi said the PSX has 400 brokers, but there are only 250,000 investors. It is the responsibility of the brokers to bring new investors into the market. 

He said barring few, many brokers failed to attract investors. He added that the PSX management is organising awareness programs to bring in new investors.