New rules force more stock brokers to surrender licences

KARACHI: At least 12 stock brokers of Pakistan Stock Exchange (PSX) have surrendered their Trading Rights Entitlement Certificates (TRECs) to the management as their business became tougher under new regulations, a top official told The News on Thursday.

The official said the tougher regulations were the major cause of increasing the cost of doing business, leading to license surrender. However, some brokers claimed their business had become dormant, so they shut the brokerage house.

The PSX officially disclosed names of six brokerage houses last week; Mian Muhammad Akram Securities (Private) Limited, Munaf Sattar Securities (Private) Limited, Dugan Securities (Private) Limited, Amin Tai Securities, Muhammad Bashir Kamani Securities (Pvt) Ltd, and Shehzad Chamdia Securities.

An active and politically well connected broker had earlier disclosed that 20 brokers would surrender licences. Now he has said at least 40 brokers would be surrendering their licences in the coming days, as it was difficult to meet the regulations.

One analyst, who did not wish to be named, said that some of these brokers were previously inactive. They had become active after de-mutualisation of the PSX but it required certain responsibilities, including monetary submission to the regulators in order to have TREC. “Thus, they were also finding a way out from the PSX,” he said.

Value of the membership card, currently known as TREC, has become zero. Previously, getting membership of the stock market had been too difficult and 200 members of the Ex-Karachi Stock Exchange never surrendered the membership. In fact, it was sold in millions of rupees. In 2008, the membership card was sold at the highest price of above Rs130 million. “Now, nobody buys it,” said the broker.

Because of the tougher regulations, no new investor is entering the market. Recently, the PSX tried auctioning two membership certificates twice with advertisement in the newspapers, but it did not receive any bid. A top official confirmed the situation. The reason is tougher regulations.

Not only has it become difficult to work as a broker, but even leaving the PSX was not an easy task. The brokers have to pay a two year security deposit of Rs5 million.

“After de-mutualisation, we brokers possess 40 percent or 16 million shares of the PSX, but even our shares are not considered as guarantee or security deposit,” said a broker.

The condition of declaring the brokerage house as a public company if its revenues surpassed Rs100 million was the top difficulty for the members of the PSX, said one member. They did not want to share their family business with anyone, as there was a requirement of appointing at least three independent directors at an investment of Rs100 million.

Besides, majority of small brokerage houses facing compliance hardships were going through discussions with other members for surrendering their licenses. These brokers would either continue in the PSX by becoming investors of other brokerage houses or by opting for other business outside the stock market, he said.

Declaring the brokerage house a public company, and acquiring a mandatory certification for the all traders of the brokerage houses from Institute of Capital Markets (ICM) was another challenge for the brokers, especially for the less educated and elder traders.

Nadeem Naqvi, managing director of the PSX, told The News, “Regulatory regime requirement is getting tough.” But, they needed compliance to move forward in the MSCI index.

He said under integration of all three stock markets in Pakistan, there were two options for those brokers who kept a small number of investors and themselves were major investors. “Firstly, they can go through a merger. Secondly, those who are not for mergers can go out of the market after 12 months of integration,” he said. The integration took place on January 11, 2016.

PSX is based on 400 brokers in the country but there are only 250,000 investors. It was the responsibility of the brokers to bring new investors in the market, but with the exception to a few major houses, all others failed to attract investors, Naqvi said. The PSX management was doing the work of brokers by organising programmes for new investors.