In a step towards bringing greater transparency to the country’s stock exchanges, the equities market watchdog on Monday approved legal documents aimed at separating regulatory and commercial affairs of the bourses and turning them into profitable corporations.
These documents, including draft of memorandum and articles of association, had been submitted by the stock exchanges under a mandatory requirement of the Stock Exchanges (Corporatisation, Demutualisation and Integration) Act 2012. The approval of the documents by the Securities and Exchange Commission of Pakistan (SECP) has taken the process of corporatisation and demutualisation of the stock markets a step further.
Importantly, the SECP approved revaluation of assets and liabilities of the stock exchanges. The revaluation has been done by chartered accountants hired by the exchanges and would become a base for issuance of shares to existing shareholders, said an SECP official.
Promulgated on May 7, the Stock Exchanges Act provides a framework for the corporatisation, demutualisation and integration of stock exchanges. According to the Act, the demutualisation process will be completed by September 3 this year.
The SECP has also approved authorised and paid-up capital of the exchanges with the number of shares to be issued, names of initial shareholders of the exchanges and the number and value of shares to be allotted to each member of the bourses.
The SECP also approved names of member-directors of the bourses nominated by the exchanges, along with names of SECP-nominated six directors on each stock exchange to act as first directors.
According to the SECP official, the watchdog has decided to retain existing members of the boards. Since SECP-nominated members will be increased to six from existing four, the commission has nominated two additional members on the board of each stock market.
The stock market’s nominated members will come down to four from existing five, thus, the exchanges have removed one member from the existing boards while the rest will continue to perform their duties.
The SECP also approved a detailed five-year development plan for stock markets together with estimates of capital expenditure and sources of finance.
It said demutualisation will bring Pakistani capital market at par with other international jurisdictions and will result in enhanced governance and transparency at the stock exchanges. The process is also expected to attract strategic investors which will not only provide equity and technical expertise but will also result in increased visibility of these exchanges on international capital market forums.
At present, the stock exchanges are operating as non-profit companies with a ‘mutualised’ structure wherein members have ownership as well as trading rights. This structure creates conflict of interest as members predominantly control affairs of the stock exchanges which results in lack of transparency in operations and compromises investor interest.
Published in The Express Tribune, July 24th, 2012.
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