Small brokerages feel survival in exit with PSX sale proceeds

KARACHI: A number of brokerages of the Pakistan Stock Exchange (PSX) with a narrow investor base prefer to exit the securities business after receiving proceeds from the bourse divestment to Chinese consortium, sources said on Tuesday.  

The sources said they are either merging with well-grounded brokerage houses or bidding farewell after getting funds against their shareholdings in the bourse.  “A large number of brokers are unable to attract investors,” said a source privy to the development. 

An official version on the development could not be obtained despite several attempts. Earlier this month, the PSX sold its strategic 40 percent stake to a Chinese-led consortium for Rs8.96 billion. Subsequently, the PSX board has been reconstituted with a major representation from Chinese directors.

The sale proceeds have already been parked into nostro bank account. Brokers are also receiving their due proceeds. Each shareholder-broker is entitled to Rs40 million.

There are around 365 brokers – also known as the trading right entitlement (TRE) certificate holders in the PSX. They still hold 40 percent stake even after the divestment, while the remaining 20 percent is set to float at Rs28/share during the initial public offering once the PSX is listed by June. 

At least three brokerages, namely MYM Equities Pvt Ltd, Abid Investments Pvt Ltd and Fort Investments Pvt Ltd, have so far filed applications for the relinquishment of their TRE certificates following the PSX divestment.

The Securities and Exchange Commission of Pakistan, in a statement previously issued, said certain brokers wanted to exit the brokerage business after the integration of all the three stock exchanges in the country early this year as they were given shares against their membership.

Prior to the PSX sale deal, more than a dozen brokers had surrendered their trading licences on the ground that the regulator toughened the regulations to such a level that they were unable to continue with the business. 

The regulations were toughened to pave the way for the PSX’s entry into the Morgan Stanley Capital International (MSCI) Emerging Market Index. 

In June 2016, the US equity indices provider included PSX into its benchmark emerging-market index that is likely to attract multimillion dollars of portfolio investment in the Asia’s best performing market. PSX would be inducted in the EM Index in June 2017.

A broker said majority of small brokerage houses, facing hardship in compliance, gave up their licences, but opted to continue trading as investors of other brokerage houses.

Nadeem Naqvi, managing director of the PSX said post-demutualisation there are two options for the brokers who keep a very small number of investors and rather are major investors by themselves.

“They can go for merger or go out of the market after 12 months of the integration,” Naqvi said in one of his earlier interactions with media. “We have set mindset for stocks to grow. I want them to become more professional. Market needs professionalism to expand the investor base,” he said.