ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has failed to implement ‘the brokers’ model’ in the Pakistan Stock Exchange (PSX) after stockbrokers rejected the idea fearing that it would lead to place the market in few hands.
Securities Market Division (SMD) Commissioner Shauzab Ali held two meetings with brokers to discuss the ‘stockbrokers’ model’ but failed to convince participants of both groups.
The commissioner, who was accompanied by Policy Regulation and Development Department-SMD Executive Director Imran Inayat Butt, faced resistance from small brokers and key players of the market alike.
The first meeting was held with the delegation of PSX Stockbrokers Association and another meeting was held by the SECP Commissioner with brokers having paid-up capital of more than Rs250 million.
During the discussions brokers rejected the model on the grounds that it would create oligopoly of few brokers, while small players expressed fears that the move would force them out of business.
The brokers were informed that the ‘brokers’ model’ would provide leverage to the small brokers to enhance their retail network whereas the large corporate brokers would work towards increasing stock market listings.
While the SECP believes that the proposed model prescribed different roles for market players based on their financial strength and also helps capital market players of the country to adopt international best practices as well as meet certain criteria of Financial Action Task Force (FATF).
The ‘model’ proposes that stockbrokers with equity up to Rs250m will be allowed for execute trading only whereas those with Rs250-500m will be allowed to execute trading as well as settlement of shares, along with the power to hold securities, while banks or brokers with paid up capital of more than Rs500m as they will have the power of clearing the settlements.
Talking to Dawn, the smaller players among the stockbrokers said that there were 224 brokers at the PSX and around 194 will be out of business if the model is implemented whereas everyone else will be dependent on the remaining 30 TREC holders.
While key brokers had objections over the custody of shares belonging to the client to eradicate the risk of defaults, “We asked if there is a similar policy for the banks too that all the money will be deposited at the State Bank to ensure that account holders’ money remains safe,” said one of the participants in the meeting.
“The new policy will eventually benefit the brokerages that have their own banks,” the participant added.
The SECP officials asked the brokers to play their due role in countering challenges being faced by the PSX including negligible new listing and low volumes in daily trade.
Sources in the SECP said that brokers agreed over both the issues and pointed out that out of around 215,000 account holders registered at National Clearing Company of Pakistan Limited, only 5,000 to 7,000 were active.
“The uncertainties related to the International Monetary Fund programme and the upcoming FATF meeting was holding the investors [back],” a senior executive of the SECP acknowledged.
Besides, relationship between the SECP and brokers remains stressed as even the SECP Policy Board Chairman Khalid Mirza has repeatedly expressed concerns that the stock market was over-regulated and ‘more breathing space was required by the brokers.’
After the rejection by the stockbrokers, the SECP has decided to revise the model after consulting stake holders, whereas the corporate sector regulator has the powers to notify rules unilaterally, but such a decision could lead to litigation in the court of law.
