Tuesday December 07, 2021

Tarin to launch PSX’s first Professional Clearing Member

November 26, 2021

ISLAMABAD: Shaukat Tarin, Adviser to PM on Finance, will inaugurate Pakistan’s first Professional Clearing Member (PCM) EClear Services Ltd today (Friday), an entity set up by the Central Depository Company (CDC) under the SECP’s new broker regime.

The launch of PCM is a major milestone that will help level the playing field in the stock market, promote transparent corporate structures, and enhance confidence of investors and ensure organised development of the market, according to an official statement.

SECP had introduced the new Broker Regime under the Securities Brokers (Licensing & Operations) Regulations in 2020, classifying securities brokers into three categories namely Trading & Clearing, Trading & Self Clearing, and Trading Only. One of the major requirements for the implementation of the new Broker Regime was the introduction of an independent third party Custodial, Clearing & Settlement service provider for the clearing and settling of trades executed by Trading Only Brokers.

Around 25 Trading Only Brokers have signed up for the services of the new PCM, the statement says, and by December 2021, the SECP’s new brokers regime will be completely implemented, and all Trading Only Brokers will start using

the services of PCM by shifting their clearing, settlement and custody functions to PCM.

Globally called as General Clearing Member (GCM), PCM is an international best practice of “Third Party Clearing” service providers.

The procedure entails that Clearing and & Custodial services are provided to trading members of the exchange, by an entity that is normally not a trading member of the exchange itself.

Prior to the implementation of this regime in Pakistan, all brokerage houses retained custody of investor assets and were subject to the same compliance requirements regardless of their size or capacity. This made it difficult for many smaller brokers to fully comply with the law and ensure adequate investor protection.

Under the new regime, the brokers, who are unable to meet financial reporting requirements, and fail to develop a sound compliance system to meet AML/CFT guidelines, will not be allowed to have custody of investors’ assets.

Industry experts said this introduction of a stringent but advanced regulatory framework for brokerage houses is not only an essential step towards bringing Pakistan's capital markets at par with the international platforms, but is equally relevant to ensure maximum compliance with the AML/CFT requirements. They called SECP’s efforts on this new regulatory framework as a timely step in the right direction.

According to SECP, PCM will aid in enhancing the country’s compliance with the FATF regime and also facilitate investor protection, capital market outreach and strengthening of the brokerage industry through enhanced financial viability of brokerage houses.