Govt asked to reconsider new stockbrokers’ regime

NA panel says it can result in monopoly of 20 big brokers over stock market

ISLAMABAD: The National Assembly Standing Committee on Finance on Thursday recommended the government to revisit the new stock market brokers’ regime which, in its current form, can result in monopoly of 20 big brokers over the bourse.

The standing committee, which met under the chairmanship of Pakistan Tehreek-e-Insaf (PTI) MNA Faizullah, directed the Securities and Exchange Commission of Pakistan (SECP) to consult all stakeholders within two weeks and prepare a report.

SECP Policy Board Chairman Khalid Mirza, the PSX Stockbrokers Association and some members of the standing committee were of the view that the new regime, enforced this week, would wipe out small and medium-sized brokers from the stock market.

However, SECP Chairman Amir Khan said the new regime had eased the regulatory burden on the small brokers and would protect the investors.

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“Our overriding concern was that these regulatory changes should not disrupt the stock market and we have given eight months to fully implement the new regime,” he said.

The standing committee also expressed concern over notifying the new regulatory regime three days before the committee meeting.

The new regime is based on the categorisation of brokers into three categories - Trading & Clearing (T&C), Trading & Self-Clearing (TSC) and Trading Only (TO). The T&C and TSC categories permit brokers to keep custody of client assets.

There were a few deficiencies in the new regulatory regime that could have been avoided by sharing it with the SECP policy board before its enforcement, said Mirza.

In its current form, the investors would be beholden to a few top brokers, who may exploit them, he said. Mirza stressed that there was a need to revisit the new regulatory regime.

The new regime would benefit only 20 super brokers, said PSX Stockbrokers Association President Basharatullah Khan.

However, the SECP chairman said proper consultation had been done with a number of stakeholders in the past 10 months and the SECP policy board had also approved the concept.

He emphasised that the objective of the new regime was to increase the number of brokers, improve governance, internal controls and compliance with the anti-money laundering and countering financing of terrorism (AML/CFT) requirements.

The confidence of stockbrokers was a prerequisite, otherwise, if they went on strike the government had a history of succumbing to the pressure within two minutes, remarked PTI MNA Dr Ramesh Kumar.

The SECP executive director pointed out that the market trading volume was shrinking for the past 10 years and the total number of shares traded in 2019 was 39 billion compared to the last 10-year average of 51 billion.

Over the past 10 years, while a number of new products had been introduced in comparable markets, not a single new product was introduced in the Pakistan stock market.

Similarly, the total number of new IPOs in the market remained at an average of five in the last 10 years and in 2019 there was just one IPO.

At present, contrary to global practices, all securities’ brokers in Pakistan keep custody of investor assets and are therefore subject to the same compliance requirements regardless of their size or capacity, said Imran Butt, Executive Director of the SECP.

This makes it difficult for many brokers to comply with the law and ensure investor protection, he added.

The executive director said the SECP diluted the new brokerage regime to address their concerns, adding that AML and CFT requirements would only be applicable to the big brokers.

After consultation, the minimum initial net worth requirement for TSC brokers was reduced from Rs150 million to Rs75 million and the requirement for TSC brokers to comply with the Code of Corporate Governance for listed companies (Code) had been removed, he added.

With the PSX in freefall, stockbrokers quit business

Similarly, the requirement for the TSC brokers to appoint at least two or one-third independent directors, whichever is higher, has been relaxed with at least one only.

The requirement for the TSC brokers to constitute an audit committee has been relaxed and more simplified provisions will be specified by the SECP. TSC brokers have been given the flexibility to appoint an auditor either from category A or B of the State Bank of Pakistan (SBP) panel, said Butt.

The restriction on TO brokers relating to opening new customer accounts has been removed.

Brokers’ concerns seemed to be genuine and the commission should have shared draft regulations with the SECP board before notification, said MNA Dr Ayesha Ghaus Pasha.

Published in The Express Tribune, February 7^th, 2020.

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