‘Over-regulation driving smaller players away’

KSE Stockbrokers’ Association president says there are no takers of TREC anymore

KARACHI: Over-regulation is hurting stockbrokers and driving smaller players away from the brokerage business, KSE Stockbrokers’ Association President Yasin Lakhani said in a recent interview.

“There are no takers of TREC anymore,” he said while referring to the trading right entitlement certificate, which is the broking licence for the Pakistan Stock Exchange (PSX).

TREC would sell for millions of rupees when only a maximum of 200 brokers could act as intermediaries on the country’s leading stock exchange in Karachi. However, after the merger of Karachi, Lahore and Islamabad stock exchanges, non-Karachi brokers also became TREC holders of the unified national bourse, thus diluting the market price of the trading licence.

Along came a number of regulatory measures like mandatory certifications for brokerage staff introduced by the Securities and Exchange Commission of Pakistan (SECP), which increased compliance costs significantly for smaller players.



“As many as eight Karachi-based brokers have surrendered their TRECs in the last couple of months,” Lakhani told The Express Tribune. “The cost of staying in business has gone up a lot,” he added.

Recent licence-surrendering brokers include Bashir Kasmani of Muhammad Bashir Kasmani Securities, Amin Tai of Amin Tai Securities, Munaf Sattar of Munaf Sattar Securities, and Shehzad Chamdia of Shehzad Chamdia Securities.

The tussle between stockbrokers and the SECP over new regulations had flared up in the second half of 2015. A meeting between the representatives of the regulator and brokers in the first week of December led the apex regulator to cede some ground to stock market players with regard to the proposed regulations.

As per news reports, the SECP had at the time agreed to implement the new brokers’ regime in a “phased manner” and with “minimum disruption”.

The new rules emphasise a greater degree of compliance, complete separation of clients’ assets from the brokerage house’s own assets, mandatory certifications for staff members, and auditing requirements.

Lakhani said the SECP’s decision to make certifications for brokerage staff from the Institute of Capital Markets (ICM) mandatory was tantamount to over-regulating the industry.

“Some of the staff members may not have the kind of academic qualifications that the SECP requires, but they know their work well. They have spent decades in this trade. How can we fire them overnight just because they lack ICM certifications?” he said.

ICM has an exclusive mandate from the SECP to develop syllabuses for all certification programmes, prepare study material and conduct examinations to ensure that only trained and certified professionals operate in the capital markets of Pakistan.

ICM certifications include Pakistan market and regulation programme (PMR), fundamentals of capital markets (FCM), stockbroker certification (SBC), financial derivatives trader certification, and financial adviser certification.

According to an earlier SECP directive, brokerage houses were supposed to obtain for their staff the PMR, FCM and SBC latest by June 30. Brokerage houses also had the option to avail the “grandfathering provision” for their staff. Under this provision, paying a fee makes a candidate eligible for the award of the ICM certification.

However, more than 75 brokers filed a constitutional petition against the SECP’s directive last December. As a result, the Sindh High Court restrained the SECP last week from taking any “coercive action” against stockbrokers for not complying with the requirement of ICM certifications until the next hearing on July 13.

“There are about 400 TREC holders, but 85% of the brokerage business is concentrated in the hands of about two dozen players. High compliance costs have made the survival of smaller players impossible,” Lakhani said.

Published in The Express Tribune, July 6^th, 2016.

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