SECP withdraws ban on brokers to sell PSX shares

KARACHI: The government has completely pulled out restriction on brokers to sell their stake in the Pakistan Stock Exchange (PSX), a move that is likely to give a shot in their arm with liquidity and diversify shareholders, The News learnt on Tuesday.

The Securities and Commission of Pakistan (SECP) withdrew ban on sale of 15 percent PSX shares held by brokers following completion of one year of the stock market’s public subscription. The SECP now directed the exchange to unblock 25 percent of shares of the sponsors, a filing with the PSX said.

An analyst said divestments would result in improvement in liquidity situation of brokers. “They can monetize their shareholdings in the PSX,” the analyst said, requesting anonymity.

In 2016, PSX sold 40 percent of its strategic stake to a Chinese consortium in a deal valued $85 million.

The following year, 20 percent of the PSX shares were offered to public through initial public offering. Remaining 40 percent of the exchange’s stake continues to be held by the 200 brokers with equal shareholding.

Under a law (Public Offering Regulations, 2017), 40 percent of the total PSX shares held with the sponsors / initial shareholders were blocked. “On completion of 12 months from the last date of public subscription (i.e. June 13, 2018) 15 percent of the shareholding of the sponsors / initial shareholders was unblocked and whereas the rest of the 25 percent shareholding of the sponsors / initial shareholders remained blocked for the period as required under the said regulations.”

The SECP further instructed PSX that the trading rights entitlement certificate (TREC) holders be advised to pursue the divestment of their shareholding, “if it is so desired, preferably to financial institutions or other institutional investors ideally through a block-sale mechanism”.

Since there is no binding on sponsors to choose buyers for their shares, this seems to create monopolistic environment in which a few brokers could command control over shareholdings.

An analyst, however, ruled out any such likelihood.

“This is not happening,” the analyst said. “Second, even if this happens, what’s wrong in that? After all, Chinese consortium too holds significant stake.”

The divestment doesn’t entail exit of brokers. “TREC and shareholdings are two different things,” the analyst said. “Even after relinquishing shares, brokers can continue to hold trading rights.”

Majority of these sponsors / initial shareholding is lien marked by the brokers in favour of PSX against base minimum capital (BMC) requirement. “Upon removal of lien on such shares, it will be required that the collateral requirement under BMC is fulfilled,” the PSX notice said.