KARACHI: Government on Tuesday conceded the demands of stock brokers to amend the newly-introduced broker regime that envisages protection to securities investors, following deliberations surprisingly after notification of the rules.
The Securities and Exchange Commission of Pakistan (SECP) agreed to amend Securities Brokers (Licensing and Operations) Regulations 2016 after detailed deliberations on feedback from Pakistan Stock Exchange Stockbrokers Association (PSA), a representative body of the brokers’ community. Under the agreement, minimum net worth requirement for trading and self-clearing (TSC) category would be increased to Rs50 million on September 30, 2020, Rs60 million on September 31, 2021 and Rs75 million on September 31, 2002.
Now, condition of independent director and audit committee for TSC category brokers would be removed. Further, assets under custody limit was set at 15 times of net worth of TSC brokers, which don’t have broker fiduciary rating – custody of proprietary book and directors and sponsors and their close relatives to be excluded from the limit. The new broker regime will be implemented only after the appointment of one professional clearing member.
The agreement lessened the concerns of all powerful brokers’ community, which holds 40 percent stake in the Pakistan Stock Exchange (PSX) after the demutualisation led to transfer of strategic 40 percent stake to Chinese-led consortium, while the remaining stake was transferred to people through initial public offer. “PSA assured its support for implementation of the new broker regime subject to the above, and affirmed that there would be no further comments on the matter,” said a meeting’s document available with The News.
Earlier this month, the SECP approved new broker regime to expand narrow investor base, but the new law caught broker community by surprise as they looked forward to further discussion over the regulations. PSA had irked over the approval of new rules before the meeting convened by a National Assembly’s body to discuss the matters.
“It had never happened in the past,” the association quoted the secretary National Assembly standing committee as replying to a question by the association. But, the secretary said the meeting would be held as scheduled, it said. Despite the notification, the SECP extended the timeline for implementation of the new regime by three months from July 1, 2020 to October 01, 2020 to ensure no disruption to the market and a seamless transition.
Previously, the SECP said a concept paper proposing to introduce the new broker regime, based on global benchmarks was first released in April 2019. The SECP organised numerous consultative sessions with the stakeholders, including brokers based in Karachi, Lahore and Islamabad, stock exchange, central depository, clearing company and mutual fund industry. In November 2019, a revised concept note was issued for public consultation, taking into consideration valid suggestions of the stakeholders. The amended regulations introduced categorisation of securities brokers with enhanced measures for investor protection through safe custody of their assets, improved governance standards in brokerage industry, transparency and risk management.
“This move will help in addressing repeated broker custody defaults, our market had witnessed in the past, which shattered investor confidence and market integrity,” the commission said in a statement. “The regulations also catalyse migration to an effective risk-based compliance culture and a shift from the traditional way of regulating brokers alike resulting in over regulating smaller brokers.”
Presently, all brokerage houses retain custody of investor assets and are subject to the same compliance requirements regardless of their size or capacity, making it difficult for many brokers to comply with the law and ensure adequate investor protection. The practice is contrary to global benchmarks, according to SECP.