Capital market: SECP approves Clearing Houses Regulations 2016

Implementation will lead to efficient clearing and settlement services

KARACHI: In line with its efforts to strengthen the capital market and as part of subsidiary legislation under the Securities Act, 2015, the Securities and Exchange Commission of Pakistan (SECP) has approved the Clearing Houses (Licencing and Operations) Regulations, 2016.

According to a press release on Tuesday, the regulations that have been finalised after detailed stakeholder consultation have been placed on the SECP website.

In compliance with the requirements of the Act, the regulations provide for matters relating to licencing, minimum financial resources, duties and obligations, audit and accounts, appointment and conduct of directors and management, fit-and-proper criteria for directors and management and manner of outsourcing of important functions, for the clearing houses.

For the protection of investors’ interest and to boost investor confidence in the market, the regulations also provide for the establishment of a fund by the clearing house to guarantee settlements of trades executed at a securities exchange.

Under the regulations, initial and ongoing financial resource requirements for a clearing house, based on current and future risk evaluation of the clearing house’s operations, have been prescribed given the critical functions being performed by a clearing house.

For good governance, shareholding criteria and shareholding limits have been specified for a clearing house besides requiring it to appoint one-third independent directors on its board.

Considering that the clearing house has recently acquired the status of a central counter-party as per best international practice, various new requirements have been made applicable to the clearing house through the regulations to strengthen its new status and to meet its enhanced requirements.

This includes the requirement for the clearing house to form a risk committee comprising independent directors, key management personnel and industry experts in order to assist the clearing house in developing risk management policies and procedures. In line with the IOSCO principles, a clearing house will also be required to appoint a chief risk officer with segregated reporting lines for ensuring implementation of risk management policies.

Clearing houses worldwide are critical infrastructure institutions for capital markets and it is expected that with the implementation of this comprehensive regulatory framework, clearing house in Pakistan will be better geared towards provision of efficient clearing and settlement services, while ensuring maximum reduction of risks, thus promoting investor confidence, it said.

Published in The Express Tribune, August 10^th, 2016.

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