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April 13, 2019

Capital market regulations eased to attract investment


April 13, 2019

ISLAMABAD: The government on Friday eased regulations to lure back capital in the equity market that lost much of its steam in the past couple of months.

The Securities and Exchange (SECP) Policy Board that met under the chairmanship of Khalid Mirza approved a series of measures to win back local and foreign investors.

The board approved amendments into the draft of Listed Companies (buyback of shares) Regulations 2019 to remove the difficulties/impediments for companies.

The SECP Policy Board comprises ex-officio members of the ministries of finance, commerce, and law, the State Bank of Pakistan, Securities and Exchange and representatives from the private sector.

The policy board relaxed condition with respect to the company considering buyback to be enlisted as margin eligible securities. A condition was also relaxed with regard to maintaining paid-up capital of Rs200 million after buyback.

The board also removed restriction related to the sale price of treasury shares to be within 10 percent variance to closing price of scrip on the day preceding the day of approval of special resolution.

The board allowed the sale of treasury shares through negotiated market deals and clarified responsibilities of the securities broker by requiring acknowledgement of receipt of shares and ensuring timely payments and return of shares, in case of withdrawal of offer for purchase.

The policy board recommended to the commission that the Listed Companies (Code of Corporate Governance) Regulations 2017 should be based on a ‘comply or explain’ approach. The requirements pertaining to the auditors, appointment of independent/executive/female directors and audit committee should remain mandatory, it advised.

“The purpose of this approach is to facilitate listed companies to decide for themselves whether a certain requirement is appropriate for its operations and leaves it to the shareholder and regulator to consider whether the company has given a cogent explanation for not fulfilling it,” the SECP said in a statement.

The policy board also proposed the Securities and Exchange to reduce fee on assets under management by mutual funds to two basis points from eight basis points.

It advised the commission to allow mutual funds to charge sales load on subsequent investments in voluntary pension schemes.

The board approved the removal of the conditionality of retaining 15 percent of the enhanced paid-up capital as free reserves after issuance of bonus shares which were an impediment and put the distribution of a stock dividend at par with cash dividend.

The policy board also approved amendments to the National Clearing Company of Pakistan Limited Regulations 2015, which includes introduction of 44 additional margin eligible securities and the unblocking of blocked margin financing shares held by brokers on behalf of clients to improve liquidity and lower cost of doing business for brokers.

A new broker custody regime was also approved. The new regime aims at to reduce custody default risk,

enhance investor confidence, enable consolidation of brokerage industry at the upper levels of the industry, tier

brokerage houses into three categories based on financial strength and

improve anti-money laundering compliance.

The regime also envisages to expand branch network and outreach, increase collaboration with distribution channels, increase demand for new issues and products as well encourage banks to provide custody services.

The board also approved several proposed amendments to the Pakistan Stock Exchange Rule Book, the Employees Contributory Funds Regulations 2018 and Non-banking Financial Company Regulations 2008.

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