Pakistan Stock Exchange: Eligibility requirements eased for investors of GEM Board companies

KARACHI: With the approval of Securities and Exchange Commission of Pakistan (SECP), the Pakistan Stock Exchange (PSX) has eased significantly the requirements for eligibility of accredited individual investors investing in companies on the GEM Board.

As per the new definition, accredited investors include those individual investors who have assets of at least Rs 5 million, which include but are not limited to value of securities held by them in respective CDC investor accounts or sub-accounts.

With the revised eligibility criteria, total assets of investors are to be considered while assessing their eligibility to invest in GEM Board companies.

Real estate properties, vehicles and other assets can also be included for defining the assets of the accredited investors. After these changes in the eligibility requirements for accredited individual investors, more investors will be able to participate in the pre-listing process of companies to be listed on the GEM Board. This amendment will also lead to a broadening of the investor base vis-à-vis trading of shares of GEM Board companies at PSX, generating increased liquidity and higher share volumes.

Accredited investors will now themselves declare to the securities brokers that they hold assets of at least Rs 5 million in order to qualify for participating in listing of GEM Board companies or in their post-listing trading activity, and also understand the risks associated with GEM Board and GEM companies. Apart from the regulatory change, PSX has also notified the modes of acceptance of self-declaration by the securities brokers.

Auto-marking of individual investors taking part through e-IPO in GEM primary market has been announced as well. Individual investors having securities worth at least 40 percent more than the minimum requirement of Rs 5 million will be automatically marked as accredited individual investors in NCSS of NCCPL. Moreover, the securities brokers can unmark an investor in NCSS of NCCPL if they have reason to believe that the investor is ineligible to trade on GEM, based on their KYC/ CDD checks. The securities brokers will allow such ineligible investors to liquidate their GEM shares with no bearing on the brokers.

These steps will lead to convenience in terms of operational practices of the brokers. With this amendment, it is expected that advisers will now take the lead and facilitate issuers and investors for increased listings and investments in the GEM Board.

Speaking about changes in the eligibility criteria of accredited investors, the managing director and chief executive officer of PSX, Farrukh H. Khan, said the GEM Board is an important innovation for SMEs to raise debt and equity capital from the market. It also provides exciting investment opportunities for accredited investors.

The changes in the eligibility criteria of accredited individual investors would help to significantly improve participation in GEM Board companies, he said. Moreover, the self-declaration process has further simplified the operational management for securities brokers. “I am confident that these steps will increase the number of accredited individual investors and enhance liquidity and price discovery in the GEM Board secondary market,” Mr Khan said.

He said that as a frontline regulator, the Pakistan Stock Exchange has always given due attention to feedback from market participants and supported positive changes in its regulatory framework in order to encourage growth of the capital markets in the country.

Accredited investors must take the changes as an opportunity for more participation in the growth story of the GEM Board companies in the pre-listing phase. At the same time, in the post-listing trading phase, they must fully utilise this opportunity and benefit from investing in GEM Board companies which, in turn, will lead to greater liquidity on the GEM Board,” Mr Khan said.

Copyright Business Recorder, 2022