Islamabad, December 28, 2024 – The Securities and Exchange Commission of Pakistan (SECP) has granted approval to the Pakistan Stock Exchange Limited (PSX) to issue Guidelines for Stock Splits aimed at encouraging listed companies to adopt this financial strategy.
The SECP said that the guidelines are designed to address the needs of companies with high share prices by providing a structured framework for implementing stock splits. According to a press release issued by the SECP on Friday, the guidelines include detailed information on the legal and procedural requirements, step-by-step process flow, practical examples, cost and tax implications, and accounting treatments related to stock splits.
A stock split is a corporate action that divides a company’s existing shares into multiple new shares, reducing the share price while increasing the total number of outstanding shares. This mechanism improves liquidity, enhances price discovery, and makes shares more accessible to retail investors. With lower share prices, companies can attract a broader investor base and raise additional capital through further share issuances or secondary public offerings.
Currently, many listed companies on PSX have limited trading volumes due to high share prices. Some companies report trading volumes as low as 10,000 to 20,000 shares over an entire year. This lack of liquidity hinders efficient price discovery and limits investor participation, which can negatively affect the overall market’s vibrancy.
Globally, stock exchanges in developed markets have successfully implemented similar guidelines to encourage stock splits. Companies like Amazon, Apple, and Tesla have leveraged stock splits to boost trading volumes and make their shares more accessible to a wider range of investors.
In Pakistan, stock splits are allowed under Section 85(1)(c) of the Companies Act, 2017. This provision enables companies to subdivide their shares through a special resolution. Although only three companies have undertaken stock splits recently, the subsequent increase in trading volumes and investor engagement highlights the potential benefits of this strategy.
The guidelines were developed collaboratively by SECP and PSX after consultations with key stakeholders, including the Central Depository Company (CDC), the Institute of Chartered Accountants of Pakistan (ICAP), and listed companies.
To promote stock splits actively, SECP has directed PSX to organize awareness sessions and conduct a targeted campaign. These efforts aim to educate listed companies about the advantages of stock splits and their role in strengthening Pakistan’s capital market.
