ISLAMABAD: The anti-trust watchdog has approved the merger of the country’s three stock exchanges, subject to the condition that the integrated Pakistan Stock Exchange (PSE) will divest its 40% shares to a strategic investor within one year of amalgamation.
In its detailed order issued on Monday, the Competition Commission of Pakistan (CCP) has also asked the Securities and Exchange Commission (SECP) to remain vigilant to address competition concerns.
The merger has been approved subject to the conditions that PSE will carry out the divestment within one year of the date of integration, according to the CCP.
“Until the divestment of 40% of the post-merger of PSE shares to a strategic investor is carried out, the brokers transferring from LSE and ISE remain vulnerable to biased treatment at the hands of KSE shareholders,” stated the CCP.
Another concern the commission has identified is the effect the merger might have on Central Depository Company (CDC) and National Clearing Company of Pakistan Limited (NCCPL).
Further, the PSE has to sell 20% of the shares to the public within the timelines specified. In addition, more than 50% of the directors on the board of PSE will be independent and nominated and approved by SECP until the divestment is made to the strategic investor, said the CCP.
CCP undertook the second phase of the review after the anti-trust watchdog highlighted four concerns in the first review that was completed in October this year. The CCP’s primary concerns were regarding the merger that may have a potential impact on brokers and future of exchanges.
As part of the demutualisation process, which began in 2012, the stock exchanges were required to enter into agreements with strategic investors for sale of up to 40% of their respective shares to be held in a blocked account until divestment.
They were also required to sell 20% of their shares to the public and to sell to local financial institutions any remaining shares.
The exchanges were given time till August 25, 2015, to carry out this process, which has been extended by six months at the request of the exchanges.
The CCP said that to safeguard competition in the post-merger scenario, it is crucial for SECP to exercise the utmost vigilance as the sector regulator.
It has recommended that irrespective of the shareholding of PSE in CDC and NCCPL, the SECP should ensure that any new exchanges entering the market are provided due access to the clearing and settlement functions on commercial terms and conditions.
The SECP should facilitate the entry of new exchanges to the market as and when may be deemed appropriate. It should further ensure that no artificial or behavioral barriers are faced by new entrants, added the CCP.
It further said that with respect to the new financial requirements being specified in the Brokers Regulations, it is essential for SECP to ensure that they are not burdensome, in order to prevent any entry barriers. At the same time, investor protection must also be ensured and the new requirements should be in line with international best practices.
With regard to listing of new companies, the Commission observed that SECP should remain responsible to ensure listing fees are not set arbitrarily and to review any instances of unfair refusal to list a company.
In view of the various efficiencies to be gained from the merger, the Commission has held that the transaction will not lead to a substantial lessening of competition.
Published in The Express Tribune, December 1st, 2015.
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