Lengthy tussle between stock brokers, SECP finally over

Regulator accepts major demands, new regime to be implemented in ‘phased manner’

KARACHI:

The protracted tussle between stock brokers and their regulator is finally over after the Securities and Exchange Commission of Pakistan (SECP) accepted major demands of the brokerage community.

According to multiple people who attended the meeting between SECP officials and brokers of the Karachi Stock Exchange (KSE) here on December 2, the apex regulator of the capital markets ceded ground to stock market players with regard to the proposed Securities Brokers Regulations, 2015.



Brokers had been making a fuss about the proposed regime, which is aimed at drastically increasing regulatory oversight of brokerage houses in Pakistan.

“The biggest relief the brokers have received is the assurance by the SECP that the new brokers’ regime will be implemented in a phased manner,” said one broker who was part of the meeting.

The proposed regulations call for stringent measures to ensure transparency in the brokerage business. These include maintenance of clients’ assets separately from the brokerage house’s own assets, mandatory certifications for staff members, and auditing requirements.



Brokers of the KSE were up in arms against the SECP because they believed the new regulations would drive small players out of the market. High compliance costs would hurt profits of small brokers, they said, thus ensuring that only a handful of big players could survive.

The SECP officials have reportedly assured the brokers that their feedback on the draft of the new law will be incorporated in the final version. Moreover, the implementation of these regulations will now be in a “phased manner” involving “minimum disruption”.

According to the spokesman for the SECP, the new regulatory regime for brokers will now be implemented through a “consultative approach” and in a phased manner to ensure minimum disruption to the market.



However, there were varying reports about the period over which the SECP has agreed to implement the new regime. One source said the SECP plans to implement it in a phased manner over six months while another person privy to the matter said the process has been postponed to 2018.

SECP officials also assured the brokers that the implementation process will begin after the formal launch of the Pakistan Stock Exchange (PSE). The representatives of the apex regulator also promised the brokers that the Lahore- and Islamabad-based brokers in the soon-to-be-established PSE will not get any “special relaxations”.

“Word is that the minister of finance has intervened to help end the prolonged tussle between the brokers and the SECP. He is looking to privatise state-owned entities for which a smoothly functioning stock market is necessary,” said one broker who attended the meeting.

The KSE-100 Index declined 5.85% on a month-on-month basis in November. While there are many reasons for the constant decline in the benchmark index witnessed in recent weeks, independent analysts believe the brokers’ hostility towards the regulator over the proposed regulations has played a key role in drying up volumes from the stock market. The average traded volume in November remained 165 million shares per day, unchanged from October, while the average traded value declined 17.5% from the preceding month, KSE data shows.

The benchmark-100 index, which rose 27% in 2014 and almost 50% in 2013, has increased just 1.35% in 2015 so far.

Published in The Express Tribune, December 4^th, 2015.

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