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+--- Thread: SECP to introduce 2 new products in stock market (/thread-secp-to-introduce-2-new-products-in-stock-market)
SECP to introduce 2 new products in stock market - Muhammad Adnan Arshad - 01-25-2008
(Source Daily Times)
SECP to introduce 2 new products in stock market
* Demutualisation Ordinance to enhance investment in stock market
Chairman, Securities and Exchange Commission of Pakistan (SECP) Raziur-Rehman Khan on Wednesday said that two new products including Index Future and Options are in pipeline to be introduced in stock exchange market.
Addressing a press conference SECP Chairman said due to lack of expert persons, new products are not introduced in the stock exchanges. But with demutualisation, foreign experts would be available in the country and new products would be introduced, he maintained.
To bring about an improvement in the governance structure and to make the stock exchanges more competitive, the federal cabinet in its meeting held on Jan 22 approved âThe Stock Exchanges (Corporatisation, Demutualisation and Integration) Ordinance, 2008â.
He said the draft ordinance had been drafted by the SECP in consultation with three stock exchanges along international lines to facilitate the process of corporatisation, demutualisation and integration.
He said the SECP had been pursuing the process of demutualisation of stock exchanges since 2002. In this regard, the SECP had set up an expert committee on February 17, 2004 comprising of national and international securities market experts, to examine the feasibility of demutualisation, integration and transformation of stock exchanges. The committee submitted its report on September 15, 2004 and fully supported the demutualisation of the stock exchanges.
According to him, demutualisation was a well-established global trend and has been introduced in 20 different countries of the world. He said it was the process of converting a non-profit, mutually owned organisation to a for-profit entity owned by the shareholders. The process involves not only corporatisation, which was conversion of a stock exchange limited by guarantee into an entity limited by shares but also it segregates ownership and trading rights. Hence demutualisation brings balance among interest of different stakeholders in the corporate and governance structure of a stock exchange. Demutualisation also helped the stock exchanges in attracting foreign shareholding/ strategic investors.
The draft law includes enabling provisions for the conversion of company limited by guarantee to a company limited by shares and the mechanism and process of corporatisation and demutualisation of a stock exchange.
Moreover, the law empowers the SECP to approve scheme of integration of two or more stock exchanges without recourse to the High Court. Under existing legal framework, any scheme of mergers/ integration was required to be approved by the High Court, which was a time consuming process. With the enactment of special legislation, integrations/ mergers of the stock exchanges would be effected in relatively much lesser time.
The SECP chairman said the draft law also contains provisions relating to governance structure of the demutualised stock exchange to ensure segregation of its regulatory function from its commercial function, placing restriction on sale and purchase of shares held by various categories of shareholders and empowers SECP to supervise self listing of a demutualised stock exchange.
The shareholding structure of a demutualised stock exchange would be as follows; strategic investor and Local Financial Institutions 40 percent, general public 20 percent; and existing brokers 40 percent. The Ordinance further restricted any initial shareholder, a member of general public or Trading Right Entitlement (TRE) certificate-holders to hold more than one percent of the shares of stock exchange and Financial Institutions to hold more than 5 percent of shareholding.
After demutualisation, 60 percent of the board of the demutualised stock exchange would comprise of independent directors. Moreover, as per draft Ordinance, TRE certificate-holders could not hold majority on Board of a stock exchange. The Ordinance also restricts any TRE certificate-holder to become the Chairman of a Demutualised stock exchange, he explained.
Mr Khan said after demutualisation, only corporate entities would be registered as broker on the stock exchange. The existing TRE certificates could only be transferred once. All other TRE certificates would be non-transferable. A stock exchange could not issue new TRE certificates till June 30, 2010 unless two-third majority of TRE certificate holders decide otherwise. Subsequently, till December 2010, every stock exchange would be required to offer for issuance 15 TRE certificate each year. Thereafter there would be no restriction on trading rights.
He said that with promulgation of the Ordinance, the process of corporatisation and demutualisation would start and will be completed within a period of 119 days. The stock exchanges would be requires submitting the necessary information within 45 days of the promulgation. Subsequently, the Registrar would issue a certificate of re-registration after the stock exchanges meet all the requirements of the law. The stock exchange would stand corporatised and demutualised from the date of issuance of certificate of re-registration.
Furthermore, the Ordinance provided for the divestment of up to 40 percent shares to the strategic investor and local financial institutions and 20 percent to the general public. The local financial institutions would get shares if any were remaining after sale of shares to the strategic investor and the general public. A strategic investor may acquire additional shares from the general public (after three years of the initial acquisitions) to increase its shareholding to 51 percent by making a public offer.