Rating conditions being simplified: ECR, BMR requirements for securities brokers to go

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has decided to simplify the rating requirements for securities brokers and will abolish requirements of maintaining the specific Entity Credit Rating (ECR) and Broker Management Rating (BMR).

The senior SECP officials shared the details of the proposed amendments to the Securities Brokers (Licensing and Operations) Regulations, 2016 (“Brokers Licensing Regulations”) and the Public Offering (Regulated Securities Activities Licensing) Regulations, 2017 (“Public Offering Licensing Regulations”) here at the SECP Headquarters on Tuesday.

In order to further rationalize the rating requirements for securities brokers, it is proposed to move towards a single rating regime, as planned, based on BMR. The brokers shall be required to obtain the prescribed Broker Fiduciary Rating (BFR) upon expiration of their existing ECR or BMR rating as appropriate, or within six months from the date of implementation of these amendments, whichever comes later. Hence, their existing ECR and BMR ratings shall remain valid until expiration, SECP officials explained.

The SECP has sought input from market participants and the general public on the proposed regulatory amendments in the ratings regime for securities brokers. The aim of these amendments is to simplify the rating requirements for securities brokers in order to promote efficiency in the capital market.

Non-life insurance cos: SECP suggests ways to determine risk capital charge

Under the existing regulatory framework, securities brokers may be required to obtain multiple ratings such as the Entity Credit Rating (ECR) and Broker Management Rating (BMR) to perform various activities. The concept of Broker Fiduciary Rating (BFR) was introduced with the aim of having a single ratings regime for securities brokers through phase-wise implementation of the BFR.

The purpose of the current amendments is to give effect to the planned regime by abolishing the requirement for securities brokers to maintain a specific ECR or BMR rating, and prescribing the minimum BFR to be maintained, where applicable. This requires introducing amendments in the Securities Brokers (Licensing and Operations) Regulations, 2016 (“Brokers Licensing Regulations”) and the Public Offering (Regulated Securities Activities Licensing) Regulations, 2017 (“Public Offering Licensing Regulations”).

As per revised amendments, the minimum rating requirement for Trading & Clearing (TC) brokers under Brokers Licensing Regulations shall be changed from ECR of A- to BFR 2. The minimum BFR required to be maintained by Trading & Self-Clearing (TSC) brokers under Brokers Licensing Regulations shall be specified as BFR 3.

The BFR required to be maintained by brokers applying for the license of Consultant to Issue (CTI) under Public Offering Licensing Regulations shall be specified as BFR 3+.

The brokers applying for the license of Underwriter are presently required to obtain minimum ECR of A- or A2 under Public Offering Licensing Regulations. They may alternatively maintain a minimum of BFR 3++. All requirements for brokers to obtain BMR shall be abolished,the SECP officials added.

Copyright Business Recorder, 2022