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Friday March 29, 2024

PSX sees 43 more brokers surrendering trading rights

By Shahid Shah
July 23, 2016

KARACHI: At least 43 more inactive stock brokers of the Pakistan Stock Exchange (PSX) will be surrendering their memberships in the coming days, extending the list of laggards who couldn’t adapt to the equity market’s reforms, sources said. 

So far, around 12 members of the PSX have already surrendered their trading rights entitlement certificates (TRECs) to the management. The Securities and Exchange Commission of Pakistan (SECP) recorded the inactiveness of majority of them. 

An official said a total of 55 members out of 200 were inactive before the integration of the country’s stock exchanges. After that, the PSX got the rights to issue TRECs, which slashed the value of a membership card to zero from Rs130 million in 2007/08. The stocks exchanges of Karachi, Islamabad and Lahore were merged early this year.  One analyst, who did not want to be named, said monopoly of some brokerage houses will end after the new regulations.

The analyst said these brokers had divided their business through several dummy members. “These inactive members cannot stay in the market anymore,” he said.

A top broker disagreed with the SECP that only inactive members were surrendering the licences. “Members with a lack of knowledge of information technology are also finding it difficult to run the business,” he said. “Had they hired qualified staff and worked along with the Rule Book, they would have had no need to surrender the licences.”  The broker said the regulations are beneficial for the investors as well as members in the long-run. He, however, added that the implementation is too fast. “We are not ready for the overnight implementation,” he added.

Managing Director Nadeem Naqvi at the PSX previously told The News that the regulatory regime requirement was getting tough to pave the way for the PSX to be included in the emerging markets index of the Morgan Stanley Capital International. Those with small number of investors, Naqvi added, could opt for merger or exit after a year of the integration. 

A broker said the exit is not easy as a broker has to deposit at least five million rupees as security deposit for two years. “After de-mutualisation, brokers hold 40 percent or 16 million shares of the PSX, but even our shares are not considered as guarantee or security deposit,” said the broker.

Another member said the condition of declaring the brokerage house as a public company if its revenue surpasses Rs100 million is the major challenge. Then there is a requirement of appointing at least three independent directors on an investment of Rs100 million and the members do not want to share their family business with anyone.  The member laments the inclusion of the levies collected from investors into the broker book; although the half of such payments is passed on to the government and other institutions.

A transaction worth one million rupees, for example, bear Rs34.60 fees for the PSX, Rs6.5 for the SECP, Rs100 as capital value tax and Rs200 as presumptive tax for the federal government, Rs38.779 as sales tax for a provincial government, Rs17.20 for the National Clearing Company Pakistan Limited and Rs40 to the Central Depositary Company. The broker commission on such a transaction is around Rs400, while the above levies come at around Rs437.08.

Each transaction from buyer as well as seller has to go through eight various payments, including the broker commission, which reduces the margins of the broker but increase expenses of the seller. Thus, new investors are not willing to enter in the market. The PSX has 400 brokers but there are only 250,000 investors.