Securities and Exchange Commission of Pakistan (SECP) has directed securities brokers to maintain minimum liquid capital and file monthly statements of net capital balance and liquid capital with the securities exchange and clearing house, submit reviewed statement of net capital balance and disclose the calculation of net capital balance in its annual audited financial statements.

Under the draft Securities Brokers (Licensing and Operations) Regulations, 2016 issued here on Monday by the SECP, a securities broker shall file monthly statements of net capital balance and liquid capital with the securities exchange and clearing house computed in a manner specified in Schedule II and III respectively, immediately after coming into force of these regulations, and shall also submit reviewed statement of net capital balance as on close of second quarter of its year of accounts and shall also disclose the calculation of net capital balance in its annual audited financial statements.

The securities broker shall start maintaining minimum liquid capital as per such amounts and/or ratios and after such period of time as may be specified by the Commission and upon such specification by the Commission, the securities broker shall be required to disclose the calculation of liquid capital in its annual financial statements and shall be required to submit reviewed statement of liquid capital as on close of second quarter of its year of accounts, and the requirement to maintain net capital balance, the requirement to submit monthly statements of net capital balance

and the requirement to submit half yearly audited statements of net capital balance shall be discontinued.

Provided that the above requirements to maintain the net capital balance or the liquid capital and to submit the statements of net capital balance and liquid capital shall not be applicable on a securities broker which has converted to Trading Only broker. Trading and Self-Clearing and Trading and Clearing category securities broker shall have its statutory audit conducted from an auditor enlisted within Category "A" of the State Bank of Pakistan's Panel of Auditors. A Trading Only category securities broker shall have its statutory audit conducted from an auditor which is in the list, maintained by the Institute of Chartered Accountants of Pakistan, of practicing firms having Satisfactory QCR Rating, SECP said.

The SECP has further directed the securities brokers that the licence for Trading and Self-Clearing or Trading and Clearing categories shall only be granted to an applicant which has also been admitted as a clearing member by the clearing house and a participant by the central depository. From the conversion of licence under new categories of brokers after July 01, 2020, the requirements shall not be applicable to the Trading Only category.

Applicants opting for the Trading and Self-Clearing category shall comply with the following minimum requirements:

(a) Compliance with the Listed Companies (Code of Corporate Governance)

Regulations, 2019 and shall mandatorily comply with the following requirements:

(i) It must have at least 2 or one-third members of the board, whichever is higher, as independent director.

(ii) The Chief Financial Officer must meet the minimum qualification requirements.

(iii) The Head of Internal Audit must meet the minimum qualification requirements.

(iv) Audit Committee must be constituted by the Board as per the requirements of regulation 17 of the Listed Companies (Code of Corporate Governance) Regulations, 2019.

(v) Compliance with the regulation 14 of the Listed Companies (Code of Corporate Governance) Regulations, 2019 relating to the placement of

significant issues before the board and/or committees and

(vi) Compliance with regulation 35 of the Listed Companies (Code of Corporate Governance) Regulations, 2019 relating to the disclosure of significant polices on the website.

Applicants opting for the Trading and Self-Clearing category shall also comply with the following minimum requirements:

(b) maintain a minimum Broker Rating, as may be specified by the Commission, from a credit rating company licensed by the Commission and disclose such rating at all times on its website and all advertisements;

(c) appoint its statutory auditor from category A of the panel of auditors maintained by the State Bank of Pakistan; and (d) it complies with such additional requirements for submission of returns and statements in relation to segregation of customers' assets including reconciliations of customer assets on as specified by the Commission from time to time.

The SECP said that the applicants opting for the Trading and Clearing category shall comply with the following minimum requirements-

(a) compliance with requirements of sub-regulation (3); (b) it is a public company;

(c) it maintains a minimum long term entity rating of (A-) or equivalent from a credit rating company licensed by the Commission and disclose such rating at all times on its website and all advertisements; (d) it maintains a minimum Broker Management Rating (BMR) equivalent to BMR 2 or above from a credit rating company licensed by the Commission and disclose such rating at all times on its website and all advertisements; and (e) it has an acceptable track record in compliance with the applicable laws and handling of customer complaints."

Provided that a securities broker licensed under the Trading Only category may comply with the requirement of inclusion of Directors' Report in its Annual Report on a voluntary basis.

Provided that a securities broker licensed under the Trading Only category may comply with the above requirement in respect of quarterly financial statements on a voluntary basis, SECP added.