Pakistan Stock Exchange to become operational from December 28

KSE MD says PM will inaugurate integrated stock exchange in second week of January

KARACHI:

With the merger of Karachi, Lahore and Islamabad stock exchanges, a single equity trading platform by the name of the Pakistan Stock Exchange (PSE) will become operational from December 28, according to Karachi Stock Exchange (KSE) Managing Director Nadeem Naqvi.

Addressing a press briefing on Friday at the KSE, Naqvi said the prime minister will formally inaugurate the PSE in the second week of January.



The licences of both Lahore and Islamabad stock exchanges along with their trading right entitlement certificates (TREC) holders will be terminated. These brokers will become TREC holders of the PSE, thus increasing the number of brokers on the bourse currently known as the KSE. But unlike KSE’s original 200 brokers, new TREC holders will not own any shareholding in the PSE.

In the next phase of the integration of the stock market, the PSE will sell up to 40% equity stake to a strategic investor, which will be followed by the sale of another 20% shareholding to the general public. The group of 200 KSE brokers, which originally owned 100% shareholding in the bourse, will receive the proceeds of the sale of shares. They will also retain the remaining 40% stake in the PSE.

Naqvi said the PSE will now appoint a new financial adviser to look for the strategic investor. Earlier, Deutsche Bank served as financial adviser. A local investment bank is likely to join hands with the new (foreign) financial adviser because of the general public component of the sale of KSE shares.

Borsa Ýstanbul has sent an “initial letter of interest” to the KSE to acquire up to 40% shareholding in the PSE. “Qatar Stock Exchange and London Stock Exchange have also shown interest,” he added.



Disclosure of investments

Responding to a question, Naqvi said the directors serving on the KSE board have to submit the status of their equity holdings to the Securities and Exchange Commission of Pakistan (SECP). However, he added that such information remains confidential because disclosing one’s wealth would invite unnecessary attention to KSE directors.

The right to conceal share investments from the general public despite serving on the board of the premier stock exchange appears to be a clear case of conflict of interest. Directors of the KSE have access to sensitive information about listed companies - something that they can possibly use for personal gains.

For example, a KSE director serving on the exchange’s voluntary de-listing committee gets to know in advance the buyback price of a company that is going private. He or she can possibly use such information for short-term trading.

According to an SECP spokesman, stock exchange directors are required to disclose (to the SECP) their shareholdings, including that of their dependents, in any listed security on the date of joining of the board. They are also required to disclose (to the SECP) any gains made by the sale or purchase of any share at any given time besides submitting their and their dependents’ CDC activity report on a quarterly basis.



However, the SECP spokesman did not reply in categorical terms as to the last time KSE directors actually submitted their CDC activity to the SECP.

“The KSE is an unlisted company and its directors are required to make periodic disclosures to the SECP. While ensuring regulatory compliance of information so received, the SECP is bound to maintain its confidentiality,” he said.

Although the KSE remains unlisted in the typical sense of the word, its financial statements are publicly available starting from 2005. Experts believe the SECP should make investment disclosures of KSE directors public, as it will remove any doubts about the lack of transparency at the soon-to-be PSE.

The exchange is looking for a foreign strategic investor and a higher degree of transparency will only bode well for the future of the frontline regulator of the stock market.

Published in The Express Tribune, December 12^th, 2015.

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