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PSX launches listing board to help startups raise capital

November 07, 2020

KARACHI: Pakistan Stock Exchange (PSX) has launched a startup-dedicated board to help small and medium companies raise funds through listing on the capital market, its managing director said.

PSX Managing Director Farrukh Khan told The News that the growth enterprise market (GEM) board would facilitate small and medium enterprises, greenfield projects, and tech startups to get listed on the stock exchange and raise capital.

“Around six companies have already initiated the listing process,” said Khan. “We expect the first listing on GEM board by the end of this fiscal year.”

PSX MD said the listing regulations for the GEM board are easier, while the listing costs are also lower. Smaller companies listing on GEM board could opt to the mainboard in a few years as they get matured.

“Similarly, there are restrictions for the investors because it is a high risk market, and only qualified investors could invest in GEM,” he said.

Khan said several regulations related to listing have been eased in consultation with the Securities and Exchange Commission of Pakistan, while several flexibilities have been adopted to increase listings.

“Moreover, the volumes are high at the market and companies are getting good valuations, which is why several companies are coming to the market,” he said. “After a gap of 15 months, we have seen three public offering at the PSX in the last three months, while around 10 more public offerings are in the pipeline, which would be materialised this fiscal year.”

PSX head said a state-of-the-art trading and surveillance system is being installed in the market, which would also facilitate new products such as options and index trading.

“The $5 million trading and surveillance system offered by Shenzen Stock Exchange would be implemented in the first quarter of 2021,” he said.

Khan said exchange traded funds (ETFs) have already launched and PSX is developing the product. Moreover, futures market is being revamped with more companies joining the eligible list.

“Presently, futures market offers only 30-day futures contract, and we are increasing this time period to 90 days,” he said. Khan said ETFs are the ideal product for small investors as they offer diversified exposure like mutual funds. The account opening requirements are quite tough for small investors. Small investors should opt for mutual funds and ETFs. The launch of exchange traded funds earlier this year was part of the ongoing efforts to bring the country’s capital market at par with global peers.

ETFs can be considered a hybrid security. They trade on the bourse just like equity securities while the price is derived from the underlying assets, much like mutual funds. Generally considered passive investments that aim to track the movement of a specified benchmark, ETFs have globally gained popularity among large retail investors. The assets invested in the global ETF industry reached nearly $6.3 trillion by end of last year.

Khan said the disaster recovery and business continuity processing were all in place when the lockdown was imposed in March.

“This is the reason that the PSX operations didn’t stop for even a minute unlike regional exchanges such as Sri Lanka and Bangladesh,” he said. “Due to the measures taken by the government including lowering of interest rates, flexible fiscal policy and social initiatives, Pakistan’s economy is rebounding much faster than other countries.

PSX MD said there might be challenges as the second wave is coming. With the problems in the foreign economies, flow of portfolio investment would be impacted, he said. All emerging markets are witnessing foreign selling, but ample local liquidity at PSX is absorbing the foreign offloading.

“If such foreign selling had been there few years ago, the market would have crashed,” he said.