ISLAMABAD: The Federal Government has reportedly decided to start a new regime for stock brokers, under which all brokers will be required to give custody of customer assets to a professional clearing member, well informed sources told Business Recorder.
Finance Division's source said that the securities brokers licenced under the Securities Act, 2015 are permitted currently to retain custody of customer assets and clear/settle transactions for trades executed on behalf of their customers and their proprietary accounts. However, defaults by securities brokers have resulted in significant losses to investors.
In its 34th meeting, the Securities and Exchange Commission of Pakistan resolved that a professional clearing member may be notified by the Federal Government as a "regulated securities activity", in exercise of its powers under Section 63 of the Securities Act, 2015. For purposes of the Act, the professional clearing member will be a clearing member as defined in the Act and may include brokers, or financial institutions. The Act defines clearing member as a person who is admitted as a clearing member for .clearing and settlement on his own behalf as well as on behalf of others under the regulations of a clearing house.
The purpose of notifying "Professional Clearing Member (PCM) is to provide a specific term to be used in regulations framed by the SECP under the Act for licensing of specialized entities such as independent companies, banks, NBFCs, DFIs etc, as professional clearing members and to introduce a regime of third party clearing services for investors by professional institutions which are independent entities without any rights to trade at the stock exchange with superior governance standards , minimizing conflict of interest and enhancing investor protection by allowing these institutions to provide independent service and handle customer assets. Under the new regime, all other brokers shall be required to move custody of customer assets to a professional clearing member.
The sources said, an entity having the status of professional clearing member would be licensed by the SECP as a regulated person under part V of the Securities Act, 2015. Once licenced, it shall obtain membership of the Central Depository Company of Pakistan Limited and National Clearing Company of Pakistan Limited to provide custody, clearing and settlement services to securities brokers which are not permitted to retain custody of customer assets.
It was further apprised that in order to grant licence to a professional clearing member under the Securities Act, 2015, it has to be notified by the Federal Government as a regulated Securities activity under section 63(i).
The following notification was drafted for this purpose: "in exercise of the powers conferred by clause (i) of section 63 of the Securities Act, 2015 all of 2015), the Federal Government is pleased to notify that the business activity by professional clearing member, as defined in the regulation under the Act, shall be a regulated activity."
Copyright Business Recorder, 2020