Securities and Exchange Commission of Pakistan (SECP) Chairman Muhammad Ali on Friday desired for the merger of all three stock exchanges as a national stock exchange for attracting strategic foreign investors, however, he said that in the first phase Lahore Stock Exchange (LSE) and Islamabad Stock Exchange (ISE) will be merged.
While admitting merger of all three stock exchanges as difficult, he said that option has been given to all three stock exchanges and it’s now up to the exchanges to exercise it. Accepting this option of merger or not is the sole discretion of the stock exchanges.
Addressing a media briefing at SECP headquarters, Ali said, “We have asked the ISE and LSE not to compete with each other and consolidate their energies to attract foreign investment.” The merger of ISE and LSE seems easy as compared with the merger of KSE with ISE and LSE, he maintained.
He said that all three stock exchanges have been demutualised and certificates of incorporation have been issued for them. Now the ownership of the stock exchange would be shared between brokers and investors, by 40 percent to 60 percent ratio, respectively. He informed that after introduction of capital market reforms the volume of trade that was 30 million to 50 million shares per day has now improved to 200 million shares per day and the number of investors has also increased. The value of shares has increased from 6.5 percent to 8.0 percent or 8.5 percent.
The chairman said that demutualisation would lessen the conflicts visible in the existing mutualised set-up where the brokers enjoy rights of ownership, decision-making and trading. It will support enhanced governance and transparency at the stock exchanges and bring greater balance between interests of various stakeholders by clear segregation of commercial and regulatory functions and separation of trading rights and ownership rights. Post-demutualisation, the Pakistani stock exchanges will be in a better position to attract international strategic partners and good quality issuers.
Rather competing each other and utilising their energies separately, they should consolidate their energies for attracting foreign investment. He informed that stock markets need strategic investors to develop debt market, derivative market, while SECP is working on investors education, Internet trading, development of sub-brokers regime, and expansion of distribution network to increase the outreach of the capital market to rural centres of the country.
CGT: The SECP chairman further informed that Ministry of Finance has approved the capital gains tax (CGT) rules, which have been vetted by the Ministry of Law and Justice at present. Enforcement of these rules would start by next week. After enforcement of these rules CGT would be collected on traded shares since April 27, 2012 and there would be complete automated regime of CGT collection.
Reforms: Ali informed that SECP intends to strengthen its enforcement, investigation, inspection and audit functions and capacity building of the entire staff to ensure these initiatives. Now in Company Registration Offices (CROs) of the SECP a company can be registered within four hours. Five teams have been formed not only to recommend ways for facilitation of the registration of the companies but to carryout reforms for achieving the said goals. The chairman informed that Initial Public Offering would be through electronic means like Internet and even through Short Messaging Service (SMS).
He informed that SECP has successfully introduced Code of Corporate Governance for private listed companies for corporate governance and now SECP intends to prepare Code of Corporate Governance for public sector entities (PSEs) listed as well as non-listed entities. This would entail all the conditions contained in code for the private listed companies and would also be applicable for PSEs as well. These conditions contain criteria for reconstitution of professional boards, appointment of chief executive officers (CEOs), fit and proper criteria for the CEOs of the PSEs, formation of audit, human resource and other required committees and evaluation of the companies. This task would be completed within the next few months. He informed that three consultations at Islamabad, Lahore and Karachi have been held and their recommendations are being reviewed by a task force comprising SECP, Finance Ministry and other government stakeholders. The task force is expected to complete its draft of the code by October and the draft would be circulated for public consultation. He hoped that Code of Corporate Governance for PSEs would be completed and enforced by November or December this year. To a question, he said that federal minister would be eligible for appointment as chairman of any bard of PSEs, however, federal secretaries would represent federal government on boards.
Replying to a question, Ali informed that reduction in policy rate by the State Bank of Pakistan would have a positive impact and when investors find lesser returns on their deposits in banks they would prefer to invest in the stock market. He further informed that boom in real estate sector would help asset creation in the country and stock market would benefit from it as well.
He also informed that it’s the federal government, which will decide measures for allowing Indian investors to invest in Pakistan’s stock market as this involves foreign exchange regulations and other policy decisions.
Source: Daily Times
