SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN

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SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN
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PAKISTAN
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SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN

• Securities Exchange Commission of Pakistan was
  established w.e.f. January 1, 1999 under
  Securities and Exchange Commission of Pakistan
  Act, 1997.
•  Corporate Law Authority (CLA), a Department of
  Ministry of Finance, was the regulatory authority
  for capital market and corporate sector until
  December 31, 1998.
• The Commission attained financial autonomy w.e.f.
  July 1, 1999.

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SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN

• The Commission comprises of Commissioners
  including a Chairman as may be fixed by the
  Federal Government. The minimum number of
  commissioners shall be five and maximum number of
  commissioners shall be seven. The Chairman is the
  Chief Executive Officer of the Commission. The
  Commission presently comprises of five
  Commissioners including the Chairman.
• A Policy Board consisting of seven members has
  been established. The Chairman of the Commission
  is also the Chairman of the Policy Board.

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SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN

• The Commission comprises of Commissioners
  including a Chairman as may be fixed by the
  Federal Government. The minimum number of
  commissioners shall be five and maximum number of
  commissioners shall be seven. The Chairman is the
  Chief Executive Officer of the Commission. The
  Commission presently comprises of five
  Commissioners including the Chairman.
• A Policy Board consisting of seven members has
  been established. The Chairman of the Commission
  is also the Chairman of the Policy Board.

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SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN

• Securities Exchange Commission of Pakistan was
  established w.e.f. January 1, 1999 under
  Securities and Exchange Commission of Pakistan
  Act, 1997.
• Corporate Law Authority (CLA), a Department of
  Ministry of Finance, was the regulatory authority
  for capital market and corporate sector until
  December 31, 1998.
• The Commission attained financial autonomy w.e.f.
  July 1, 1999.

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STOCK EXCHANGES
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CAPITAL MARKET REFORMS

• The stock market was opened for foreign portfolio
  investors on equal terms with local participants
  in May 1991.
• Commercial banks, Investment banks, Leasing
  Companies, Modarabas and Mutual Funds were
  permitted to be established in the private
  sector.
• Privatization of state-owned enterprises.
• Pricing of shares was freed for primary
  offerings.

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IMPACT OF REFORMS
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IMPACT OF REFORMS
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IMPACT OF REFORMS

• Pakistani companies were able to access
  international capital markets.
• Euro bond of Dewan Salman and Exchangeable bond
  of PTCL were launched.
• GDRs of PTCL, HUBCO and Chakwal Cement were
  issued to foreign investors.
• It was possible to float projects with all equity
  capital structure. Ibrahim Fiber, Dhan Fiber,
  Lucky Cement and Chakwal Cement made placements
  to international investors.
• The above issues together with portfolio
  investment mobilized around US 2 billion.

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IMPACT OF REFORMS
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RECENT REFORMS

• Companies Ordinance and Securities and Exchange
  Ordinance were amended to allow companies to
  issue debt securities to public.
• Controller of Capital Issues Act was repealed.
• Capital issue rules were issued.
• SECP Act was enacted and SECP was established.
• Buy-back of shares.
• Voluntary de-listing.

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RECENT REFORMS AND EFFICIENCY ENHANCEMENT
MEASURES

• RESTRUCTURING OF THE BOARD
• In 1997 Articles of Exchanges were amended to
  increase the number of non-member directors to
  strengthen the Board of Exchanges and creating a
  position of non-member Managing Director. 40 of
  the Board seats now go to non-members including
  nominees of the Commission.

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RECENT REFORMS AND EFFICIENCY ENHANCEMENT MEASURES
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RECENT REFORMS AND EFFICIENCY ENHANCEMENT MEASURES

• AUTOMATION OF MARKET INFORMATION SYSTEM
• The Exchanges have made arrangements to provide
  information on real-time basis to the investors
  through the Internet. Now general public can
  access and down load current information from the
  web of Exchanges.
• The information regarding the trading activity
  are also available through telecommunication
  networks by Fascom, through Tele-text Technology
  by Wave Tech in Pakistan and 37 other countries
  and through Reuters across the world.

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RECENT REFORMS AND EFFICIENCY ENHANCEMENT MEASURES

• Electronic book entry transfer of securities i.e.
  Central Depository System has been set up to
  eliminate physical settlement of securities.
• The CDS is managed by the Central Depository
  Company of Pakistan Limited, which has been
  sponsored by the stock exchanges and leading
  local and international financial institutions.
• Presently 97 percent of settlement is routed
  through CDS.
• CONT

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CONT

• Investors Account Services have been introduced
  in order to facilitate individual investors to
  have their account directly with CDC.
• With the implementation of CDS and automated
  trading system, trading and settlement have
  become transparent and efficient.

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RECENT SETTLEMENT CRISES

• During May, 2000 the volume of trade grew to very
  high levels along with an increase in share
  prices.
• There were reports of over trading and possible
  cornering of certain shares reportedly by some
  major market operators.
• These operators were taking positions on borrowed
  capital.
• In the process they took advantage of the bullish
  market and, consequently, the prices were
  unnecessarily pushed.
• Initially, the operators were obtaining funds
  from the market at low rates.

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RECENT SETTLEMENT CRISES

• When the operators were exposed as weak holders,
  the market started declining, particularly, in
  shares held by these operators and, as a
  consequence, the market finance rate went up
  (from 14 to 50) in those shares.
• On 26 May, being the settlement date, these
  operators failed to make the settlement.
• Due to this settlement problem the KSE index went
  down from 2000 to 1400.
• The exchanges remained closed for one day.
• The KSE declared one of its brokers as a
  defaulter and LSE suspended six of its brokers
  against whom proceedings are in progress.

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REFORMS AND EFFICIENCY ENHANCEMENT MEASURES

• SECP had to intervene and, among other rescue
  measures, created a lifeboat.
• Due to these measures, the settlements were
  possible and the market started recovering.
• SECP appointed an Enquiry Committee consisting of
  private sector professionals to investigate the
  causes of the crisis.
• Even before the report of the enquiry, the SECP
  took certain measures to reform the market -
  discussed in the later part.
• CONT

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CONT

• The report has since been received and also
  published in the press.
• SECP is in the process of giving hearings to the
  accused operators before taking action against
  such persons.

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REFORMS AND RISK MANAGEMENT MEASURES

• On the advice of the Commission the Exchanges
  have agreed to further strengthen the risk
  management system. The measures include
• Minimum Net Capital balance has been increased by
  ten times to Rs.2.5 million. This will be
  effective from January 1, 2001.
• Capital Adequacy concept for brokers is being
  introduced. The brokers would now be allowed to
  take position upto 25 times of their net capital
  balance w.e.f. January 1, 2001.
• Exposure deposit requirements are being made more
  stringent.
• Internationally accepted T3 settlement system
  will be introduced in the Exchanges shortly.
• NCSS project is also under implementation. The
  introduction of T3 continuous Net Settlement
  would help in reducing risk.

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OTHER REFORMS

• Under ADB program loan the whole regulatory
  framework is being improved and strengthened.
• Rules of asset securitization have been
  introduced.
• Takeover Law is being enacted.
• Impediments in the development of fixed income
  securities are being removed.
• Venture Capital Rules are being introduced.