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ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has introduced major capital market reforms featuring legal, structural, regulatory, operational, and product development initiatives for robust and transparent capital market in the country.

The SECP senior officials informed media here at the SECP Headquarters on Thursday that the capital market reforms are focused to ensure provision of complete eco-system desirable for the capital formation.

While doing so, the SECP continuously seeks feedback from the IOSCO member countries, in addition to independent research of the international legal standards and best practices.

In line with international practice, to facilitate listing of companies especially State-Owned Enterprises (SOEs) and to promote the culture of good governance among the corporate sector, the SECP in collaboration with the PSX has introduced the concept of Direct Listing.

Direct Listing is an alternative way of listing, whereby, shares of a company are listed on the stock exchange with minimal involvement of intermediaries.

This approach of listing is globally adopted in many jurisdictions and is expected to provide the companies with the option of tapping the capital market in an efficient manner.

To increase investor’s outreach, accredited investors have been redefined. All institutional investors and individual investors, having net worth of greater then Rs5 million, can now invest in securities on GEM Board.

Capital market: SECP revamps regulatory framework

Moreover, with the objective of bringing efficiency and creating ease in capital formation, the SECP has now allowed banks and accounting and auditing firms to act as advisor for listings on the GEM Board at the PSX.

To facilitate formation of capital by companies, now a listed company can now list their other class of shares without mandatorily making a public offer of respective class of shares.

Consequential amendments have been made in the PSX Regulations.

Moreover, the listed companies making secondary public offering and initial public offering of other class of shares, if compliant with the listing requirements, can now publish the offering document, based on audited accounts older than eight months.

Consequential amendments made in the PSX Regulations.

Officials explained that with recent amendments in Trust Act, where legal persons were removed as an eligible entity to act as trustee/investor, and to streamline the issuance of secured and unsecured debt securities, the scope of activities performed by investment agent have been enhanced.

The framework now caters for the scenario where the government can also opt in to issue Sukuk and other debt instruments through the capital market.

As a result of these changes, multiple private placements and two public offerings were successfully completed during the year.

To address liquidity concerns of secondary debt market and provide enabling environment for trading of government debt securities at the PSX, market making framework has been revamped. Non-broker members, including commercial banks, have been allowed to place quote(s) for both corporate debt and government debt securities at Bonds Automated Trading System (BATS) of the PSX.

As of June 30, 2021, ten financial institutions have been registered with the PSX as Market Maker for placing quotes on BATS for both corporate and government debt securities.

The PSX witnessed trades in the BATS segment during the year, after almost a decade.

For increasing outreach to investors, the State Bank of Pakistan, after seeking comments of the SECP, have revised Primary Dealer Framework, whereby, the capital market investors can now directly participate/invest in government debt instruments and Sukuks by registering with the CDC and the NCCPL.

In this regard, the profitability requirement has been relaxed, where SoEs intends to raise funds from the public through issuance of government guaranteed instruments or hold investment grade entity rating, officials said.

For efficient spread discovery, automated book building mechanism has been introduced. This method has effectively been run by the Government of Pakistan (GoP) in issuance of Power Energy Sukuk–II, that resulted in historic below KIBOR spread discovery and the GoP successfully increased its outreach to different categories of investors including individuals.

The SECP introduced the electronic-IPO system in coordination with the Central Depository Company of Pakistan Limited (CDC).

Through the said system investor(s) can submit IPO applications electronically and make subscription payment through e-banking channels.

Over the years, the Centralised EIPO System (CES) received an overwhelming response from IPO investor(s) and on average more than 50 percent of IPO application(s) were submitted electronically.

However, the limitation of CES was that it only allowed individual investors to submit IPO application and pay subscription money electronically.

SECP reforms developing robust, transparent capital market

To enable institutional corporate investors and Roshan Digital Account holders to submit application electronically, the SECP in coordination with the PSX has launched the PES, allowing all categories of investors to seamlessly apply through the electronic platform.

Through this platform, banks and brokers can also submit electronic application on behalf of their respective client.

The PSX e-IPO system was made operational during the IPO of Service Global Footwear Limited.

The SECP has also issued guidelines for Issuance of Gender Bonds; Green Bonds and guidelines on the convertible debt securities.

As a step towards promotion of gender equality – with a growing recognition of women’s role in the economy, the SECP has developed guidelines for the issuance of Gender Bonds.

These guidelines are aimed to facilitate the issuers of debt securities to diversify their sources of financing and provide an additional financial instrument to a particular class of investors, the SECP officials added.

Copyright Business Recorder, 2021


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