ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has allowed stock investors to take loans for up to six months from financial institutions to buy shares in a bid to boost liquidity in the wilting capital market under multifaceted reforms unveiled on Saturday.
“In addition to borrowing allowed for meeting redemption, requirements have been permitted to borrow from financial institutions for investment purposes for a period of 180 days from the date of notification,” the SECP said in a statement. “All such borrowing shall be repaid within the period allowed under the notification.”
The SECP said the reforms were introduced in view of the ongoing stock market situation and after meetings with key market participants, practitioners, heads of leading corporate and financial institutions, and managements of the market infrastructure institutions.
“The reforms undertaken by the apex regulator aim to bring stability to the market, attract liquidity, facilitate ease of doing business, revitalise development of the market and restore investor confidence without compromising on the principles of sound risk management and investor protection,” the commission said.
The SECP further repealed circular 20 of 2017 regarding deposit taking by brokers through Circular 12 of 2019 under which brokers complying with certain conditions are allowed to pay interest on subordinated loans taken from their directors, sponsors or substantial shareholders.
The SECP introduced risk management reforms to enhance trading capacity of market participants. Under the amendments approved to the National Clearing Company of Pakistan (NCCPL) regulations, the commission discontinued the 10 percent additional margins being collected from brokers and the 10 percent additional haircuts being applied by NCCPL on margin eligible securities. It revised slabs of liquidity margins, which would now be applicable only on large exposures of brokers. Credit rating has been added to manage risks, while implementing the revised slabs. Basic deposits collected by NCCPL from brokers trading in deliverable futures contract market can be used towards NCCPL margin requirements to let the brokers efficiently utilise capital.
The SECP also approved Murabaha share financing regulations to allow leverage financing in shariah-compliant securities.
Amendments to Pakistan Stock Exchange (PSX) regulations were introduced to address practical difficulties limiting trading activity by market participants and to resolve issues with blank selling in deliverable futures contract market. Additional margins from proprietary account may be removed subject to certain conditions for meeting the NCCPL margin requirements.
The SECP asked the PSX to formulate regulations relating to minimum brokerage commission to address anomalies, encourage market development and support commercial viability of brokerage industry.
Regulatory framework has been revised to facilitate investors and bring efficiency in the process. Further, certain accountholders maintaining non-trading accounts with the Central Depository Company under the investor account service are facilitated in opening of account.
The SECP also resolved issues with biometric verification of stock market investors after coordination between the SECP and National Database and Registration Authority (Nadra). NCCPL was advised to proceed in line with the Nadra instructions. The SECP further unblocked shares held by brokers as shareholders of PSX, which were previously blocked, to enable efficient utilisation of broker assets.
The SECP considered shifting from rule based corporate governance framework towards a combination of mandatory practices and recommended practices i.e. “comply or explain” approach to align corporate governance regime with global best practices and to facilitate ease of doing business. The commission said the draft of Listed Companies (Code of Corporate Governance) Regulations 2019, base on the Organization for Economic Development and Cooperation’s principles, are at a preparatory stage. The commission last week said the amendments brought in fourth and fifth schedules of the Companies Act 2017 would be applicable on companies preparing financial statements as on June 30, 2019 and onwards. “The amendments to the respective schedules were made to reduce excessive disclosure burden and remove impediments in implementation by the corporate sector,” it added.
The SECP exempted applicability of International Financial Reporting Standards (IFRS) 9 in respect of debts due from government to power supply chain companies for a limited period of three years – till June 30, 2021.
“The SECP stands committed towards its objectives of robust development of the capital markets and corporate sector and will be continuously striving towards further measures for ensuring enhanced transparency, good governance practices and stronger investor protection mechanisms,” the commission said.