Stock exchanges: Parliament approves demutualisation law

Law will convert bourses into for-profit entities owned by shareholders.

ISLAMABAD: A joint session of parliament on Tuesday approved the Stock Exchanges (Corporatisation, Demutualisation and Integration) Law – a landmark achievement which was long awaited since the passing of the bill by the National Assembly in October 2009.

“This law is part of efforts to bring about structural and regulatory changes through legal reforms in the non-banking financial market and the capital market,” says the Securities and Exchange Commission of Pakistan (SECP) in an announcement.

Other draft laws awaiting approval include the Securities Law, Futures Trading Law, SECP Law and Corporate Rehabilitation Law.

The demutualisation law provides a framework for corporatisation, demutualisation and integration of stock exchanges and was drafted after reaching consensus with all stakeholders.

The law requires the stock exchanges to be demutualised within 119 days of its promulgation in line with pre-defined timelines for reaching various milestones involved in the demutualisation exercise.

Corporatisation and demutualisation will entail converting the stock exchanges’ structure from non-profit, mutually-owned organisations to for-profit entities owned by shareholders.

“Also, due to lack of resources, our exchanges have not been able to grow to the expectations of investors as trading activity is mostly concentrated in three buildings of these exchanges with the dominant share going to the Karachi Stock Exchange,” says the SECP.

According to the SECP, demutualisation will result in enhanced governance and transparency at the stock exchanges and greater balance between interests of stakeholders through clear segregation of commercial and regulatory functions and separation of trading rights and ownership rights.

Published in The Express Tribune, March 28^th, 2012.