The Securities and Exchange Commission of Pakistan (SECP) has proposed the integration of National Savings Scheme Instruments with the Capital Market by converting the NSS instruments into market-based instruments such as PIBs and T-bills and pass them on to retail clients directly through the NSS network. The Capital Market Development Plan (CMDP) issued by the SECP said that the development of Debt Capital Market Efficient and liquid debt markets can help mitigate the adverse impact of financial crises by providing an alternative source of financing.
In Pakistan, the debt market has largely remained underdeveloped and effective measures need to be put in place to bridge this gap with other regional and modern economies. This plan envisages implementation of following initiatives and measures:
Integration of National Savings Scheme Instruments into the Capital Market: The National Savings Scheme in its current structure is a significant challenge for the reform agenda for Pakistan's debt capital markets.
The NSS instruments are targeted towards specific strata of the population such as retired persons, pensioners and widows, and are accordingly subsidized. The possibility of integrating NSS instruments into the mainstream capital markets will be assessed. One option which will be explored is to convert the NSS instruments into market-based instruments such as PIBs and T-bills, and pass them on to retail clients directly through the NSS network. ii) Establishment of a Neutral Bond Pricing Agency: Pricing of fixed income securities is an issue faced by various jurisdictions mainly due to their low trading volumes at the exchange where they are listed and also considering the fact that debt securities are primarily traded Over-The-Counter as opposed to equity securities.
The SECP said that various international jurisdictions have established bond pricing agencies which act as independent entities with the role to provide fair valuations of debt securities based on comprehensive data collection, validation, pricing, and dissemination to the stakeholders. The Pakistani capital market at present does not have any independent agency to provide such services. Valuation of only corporate debt is being carried out by MUFAP on an SECP specified criteria as an interim measure which is only utilized by mutual funds and creates conflicts of interest. While considering the importance of an independent bond pricing agency to 17 the development of the debt market, draft rules covering licensing, business conduct, responsibilities, financial resource and fit and proper requirements for establishment of the same have been disseminated for public comments.
Improved regulatory framework for Credit Rating Companies: Considering the important role performed by the credit rating companies and to ensure objectivity, independence and impartiality in the ratings given by the credit rating companies, a revised set of regulations are being framed, covering improved licensing, business conduct, composition of board of directors, fit and proper, financial resource, disclosures and avoidance of conflict of interest, accounting and audit requirements for these companies.
Regulation for Issue of Short Term Shariah Compliant Securities: In order to enable corporates to raise funds from the capital market through issuance of short term Shariah compliant instruments as an alternate to the commercial papers, regulations for issue of Short Term Shariah compliant securities will be developed. v) Review of the Companies (Asset Backed Securitization) Rules: In order to promote and facilitate the asset backed securitization in general and Islamic securitization in particular, the Companies (Asset Backed Securitization) Rules, 1999 will be revamped. vi) Regulations for Debt Securities Trustee: To protect the interest of debt securities holders, comprehensive regulatory framework for debt securities trustees will be framed under the Securities Act, 2015, covering the licensing, business conduct, financial resource, fit and proper and accounting and audit requirements for the activity. vii) New Product Development: In coordination with the Government of Pakistan, the State Bank of Pakistan, PSX and other stakeholders, feasibility of launching new products for the debt market will be explored. Possibility of introduction of various types of bonds will be assessed, to satisfy the needs of both issuers (saving deficit units) and investors (saving surplus units), the SECP added.
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