SECP unveils new regulations toease cost of brokerage business

KARACHI: Securities and Exchange Commission of Pakistan (SECP) on Monday approved new rules to simplify procedures prerequisite for a brokerage licence and ease cost of doing business, apparently to assuage dealers who opt for exit on regulatory burden.

SECP approved rationalisation of existing licencing regime for securities brokers with an objective to reduce regulatory procedures and to promote ease of doing business. “The revised regime, once implemented, would contribute in reducing regulatory burden and cost of doing business for our brokerage industry, ultimately promoting ease of doing business,” the commission said in a statement.

Under the prevalent licencing regime, a securities broker has to obtain at least eight renewable mandatory licences a year to act as a securities broker of capital markets. And, if the brokerage is mid-size or large with more than one office, the number of prerequisite licences increases even further.

“In order to provide ease of doing business, without compromising on regulatory objectives, the commission has approved that a single licence would be issued to a securities broker,” the SECP said. “A licensed securities broker would not require all other mandatory licences including futures broker, securities advisor, futures advisor and accredited representative.”

A number of stock brokers had given up their trading rights certificates since the three stock exchanges (Karachi, Lahore and Islamabad) were merged into Pakistan Stock Exchange (PSX) in 2016. They’ve been struggling to survive the rules and regulations following the integration, while most of them find tax structure causing an increase in cost of business.

The rationalised licencing regime for securities brokers would be implemented through introducing appropriate amendments in the regulatory framework. Under the new simplified procedure for annual renewal, a security broker will only require to provide recommendation from the PSX along with an undertaking and deposit of regulatory fee.

The SECP has also approved a single cut-off date concept for expiry of licences for entire brokerage industry. “This is to facilitate the brokerage industry as well as the front line regulator i.e. PSX,” the commission said.

“The SECP believes that the securities broker activity should only be undertaken in a corporate structure and the existing concept of agents for securities brokers have become redundant and is no more desirable,” it added. “Therefore, the existing regime, requiring registration of agents with the SECP would be discontinued and the proposed draft Accredited Representatives Regulations 2017, would not be promulgated.”

Moreover, the SECP decided to grant licences of regulated activities to corporate entities only. It further approved mechanism to review the advisory regime under the Securities Act 2015 vis-à-vis advisory regime under non-banking finance companies regulatory framework.

“The two different regimes for the same regulated activity with different requirements not only creates disparity and confusion but also results in regulatory arbitrage,” the commission said. “Both the regimes envisage independent custody of clients’ assets with regard to portfolio management. Hence, the securities brokers would not be eligible to act as securities advisor as their business model allowed to have custody of their clients’ assets and managing their own portfolio i.e. proprietary trading as well.”

Presently, granting of securities adviser licence to securities brokers would be against the basic spirit of advisory regime. The SECP, however, said the securities brokers would be allowed to distribute mutual funds units.

“Owing to the fact that there is no difference in the business model and the scope of regulated activities of proposed draft Securities Manager regime vis-à-vis Securities Advisor regime, the draft Securities Manager (Licencing and Operations) Regulations 2017 would not be promulgated,” it added.