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Tag: Securities and Exchange Commission of Pakistan

  • SECP drafts framework to facilitate startups in Pakistan

    SECP drafts framework to facilitate startups in Pakistan

    ISLAMABAD: Securities and Exchange Company of Pakistan (SEC Pakistan) has issued draft regulatory framework to facilitate startups in the country.

    The SECP said that with the objective to promote growth in the startups sector of Pakistan, it is necessary to make relevant changes in Company Law to facilitate the incorporation process for the startups and provide a conducive regulatory environment.

    A) Proposed changes in the Parent legislation (Companies Act)

    i) Definition of Startups

    In the Third Schedule to the Companies Act, the following category is proposed to be added:

    An entity shall be considered as a Startup:

    a) Upto a period of 10 years from the date of incorporation/registration

    b) Turnover of the entity for any of the financial years since incorporation/registration is not greater than 100 Million Rupees

    c) Entity is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.

    Provided further that an entity formed by splitting up or reconstruction of an existing entity or a separate company with similar objects and ownership shall not be considered a “Startup Company”

    i) Amendment in the Section “83 – Further issue of capital” to offer “Employee Stock Option Scheme (ESOS)” shall help address the employee retention and reward issues being faced by startups.

    The following new proviso is proposed to be added:

    “Provided that the directors of private limited company may allot the declined or unsubscribed shares to its employees under “Employees Stock Option Scheme”, on such conditions, as may be specified.”

    ii) Amendment in the clause “88 – Power of a company to purchase its own shares” shall facilitate ESOS option and shall facilitate buy back of shares by companies, since they do not have a secondary market. It would also facilitate startups in case, any founding member needs to exit from the company by allowing return of shares to a company.

    B) Changes required in Companies (Further Issue of Shares) Regulations, 2018

    i) Amendment in the clause “7. Application to the Commission for issue of shares other than right” is a consequential change whereby no application for approval shall be required to be made to the Commission under Section 83 of the Act, by a Private Company, and shall only be required to maintain and file the documents with the Commission not later than two months from the decision to issue such shares, as specified in sub-regulation (2) below.

    ii) Conditions for issuance of shares with differential rights

    The requirement for the company not to default in filing financial statements and annual returns for three financial years immediately is being changed to preceding the financial year in which it is decided to issue such shares.

    iii) Furthermore, for a private limited company, the valuation mechanism of non-cash consideration and further conditions, if any, will be amended in Companies (Further Issues of Shares) Regulations, 2018.

    Introduction of Regulatory Sandbox

    Regulatory Sandbox is a tailored regulatory environment for conducting limited scale, live tests of innovative products, services, processes, and/ or business models in a controlled environment for a limited period of time so as to assess their viability to be launched on full-scale, and to determine the compatible and enabling regulatory environment that will be conducive for the innovative solutions. The objective of these Guidelines is to purposefully meet the above.

    The Regulatory Sandbox is primarily applicable for new products, services or business models which have not been addressed under existing laws and regulations; or these new ideas bring an innovative approach to the market and there exists considerable uncertainty in terms of unexpected adverse outcomes or existing regulatory framework does not fully address the solutions proposed to be experimented through the regulatory sandbox.

  • SECP notifies conditions for lending securities by asset management companies

    SECP notifies conditions for lending securities by asset management companies

    ISLAMABAD: Securities and Exchange Commission of Pakistan (SECP) has prescribed conditions for lending of securities by Asset Management Companies on behalf of Collective Investment Schemes.

    The SECP issued Circular No. 18 of 2019 dated December 20, 2019 and prescribed the following conditions for lending of securities by Asset Management Companies on behalf of Collective Investment Schemes:

    I. An Asset Management Company on behalf of Collective Investment Schemes namely equity, asset allocation, balanced and index schemes may lend equity securities maximum up to 10 percent of net assets of such collective investment schemes out of its equity portfolio.

    II. An asset management company on behalf of Collective Investment Scheme shall lend securities only through platform provided by an authorized intermediary for the purpose of securities lending and borrowing as per the Securities (Leveraged Markets and Pledging) Rules, 2011.

    III. An asset management company shall make necessary amendments in offering document of respective Collective Investment Scheme and given necessary notice to the unit holders as per the requirements 44(7) of Non-Banking Finance Companies (NBFC) Regulations 2008.

  • Company registration increases to 108,433: SECP

    Company registration increases to 108,433: SECP

    ISLAMABAD: The total number of registered companies increased to 108,433 by end of November 2019, said a statement issued by Securities and Exchange Commission of Pakistan (SECP).

    The regulator registered 1,389 new companies in the month of November 2019.

    The substantial increase is result of SECP’s recent reforms to simplify the registration processes and reduce incorporation and regulatory forms tariffs.

    Among new incorporations, around 72 percent companies were registered as private limited companies, while around 25 percent were registered as single member companies.

    Three percent were registered as public unlisted companies, not for profit associations, foreign companies and Limited Liability Partnership (LLP) whereas 96 percent companies were registered online. During the month 130 foreign users completed registration process from overseas.

    The trading sector took the lead with the incorporation of 237, services with 165, I.T. with 159, construction with 151, tourism with 77, real estate development with 66, education with 65, food and beverages with 51, corporate agricultural farming with 39, engineering, and pharmaceutical with 35 each, marketing & development with 33, textile with 27, transport with 25, chemical with 24, auto and allied 21, healthcare with 19, mining and quarrying with 16, electric goods, and logging with 12 each, broadcasting and telecasting, and fuel and energy with 11 each, and 96 companies were registered in other sectors.

    Foreign investment has been reported in 61 new companies. These companies have foreign investors from, Bahrain, China, Czech Republic, Egypt, Germany, Korea South, Malaysia, Philippines, Russia, Saudi Arabia, Spain, Sweden, Switzerland, Taiwan, Tajikistan, the UK and the US.

    The highest numbers of companies, i.e. 477 were registered in Islamabad, followed by 358 and 282 companies registered in Lahore and Karachi respectively. The CROs in Peshawar, Multan, Gilgit-Baltistan, Faisalabad, Quetta, and Sukkur registered, 106, 64, 48, 42, 7 and 3 companies respectively.

  • SECP, universities sign MoU to promote financial literacy

    SECP, universities sign MoU to promote financial literacy

    ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has signed Memorandums of Understanding (MOU) with five leading universities to promote financial literacy among youths.

    SECP’s Commissioner Investor Education Department, Shaukat Hussain inked the MoUs, said a statement on Tuesday.

    While universities were represented by their respective Vice Chancellors, Registrars and Directors.

    These HEC recognized universities included University of Balochistan, Mehran University of Engineering and Technology Jamshoro, University of Wah, Forman Christian University Lahore and University of Malakand. Including these five MOUs, SECP’s total number of active MOUs with various institutions under its investor education program ‘Jamapunji’ reached 51, giving it leverage of an ever increasing network of partners for spreading investor awareness.

    Talking at the occasion, Shaukat Hussain emphasized on the importance of collaborative efforts between the regulator and the educational sector to enable a more aware and responsible financial ecosystem in Pakistan.

    He mentioned SECP’s efforts leading to 28 places jump in the World Bank’s Ease of Doing Business Index, making Pakistan among the top 10 countries with the most improved business climate.

    He lauded each of these universities for their established Offices of Research, Innovation and Commercialization (ORICs), which encourage and facilitate aspiring student entrepreneurs.

    The Commissioner apprised participants of SECP’s dedicated Startup Portal and ongoing collaboration with various National Incubation Centers across Pakistan.

    He informed participants that SECP is member of HEC’s National Curriculum Revision Committees (NCRC) and providing due input in improving ‘ Economics’ and ‘ Business Administration’ tertiary level curricula.

    He was of the view that a curricula with components of capital markets, insurance sector and basics of financial literacy would help in producing astute entrepreneurs.

    The representatives appreciated SECP’s efforts for cultivating financial literacy.

    Under the MoU, SECP will be holding regular seminars at universities on a continuing basis to impart knowledge to students on the basics of savings, financial planning, investing and capital markets.

    Visiting university delegates committed to extending their full support through their vast network of colleges and campuses, radio channels, faculty resources, infrastructure and premises, information exchange etc., to make meaningful impact hand in hand with SECP.

  • SECP issues qualified capital criteria for NBFCs

    SECP issues qualified capital criteria for NBFCs

    ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) on Friday issued criteria for qualified capital and its terms and condition for Non-Banking Finance Companies (NBFCs).

    The criteria have been issued for those NBFCs which exclusively in the business of issuance of guarantees to enhance the quality debt instruments issued to finance infrastructure projects in Pakistan, namely:

    Qualified capital means the aggregate of callable capital and contingent capital (including any drawdown threunder);

    Explanation: For the purpose of this clause the expressions:

    i. Callable Capital means share capital that, in terms of written agreement entered into between the NBFC and sponsor, shareholder and/or investor, as the case may be, is agreed to be subscribed on the following terms and conditions:

    a. the shares shall be fully subscribed over a period of 24 months from the date of the written agreement;

    b. during the subscription period specified in sub-clause (a), the obligation to subscribe to shares shall be irrevocable and on demand, at the sole discretion of the NBFC; and

    c. the subscription obligation shall be secured by a bank guarantee or standby letter for credit from a commercial bank rated AAA or higher by a credit rating agency registered with the commission;

    ii. Contingent Capital means long term commitment for finance that, in terms of a written agreement entered into between the NBFC and a Qualified Financial Institution(s), is provided as a second loss facility on the following terms and conditions:

    a. at any time, the contingent capital, in aggregate, shall not exceed one and a half times of the sum of paid up share capital and callable capital of the NBFC;

    b. the commitment shall, in accordance with the terms thereof, be irrevocable, confirmed and fully committed;

    c. the long term commitment and the finance thereunder shall be available on a revolving basis;

    d. the finance under the commitment shall be callable and demand upon a capital event and the sole discretion of the NBFC or on a direction by the Commission (after giving the NBFC a reasonable opportunity of a hearing), which shall be binding on the NBFC; and

    e. the commitment shall be replaced by the NBFC if the financing entity ceases to be a qualified financial institution;

    iii. Qualified Financial Institution means a local or a international or multilateral financial institution rated AAA by a credit rating agency registered with the Commission;

    iv. Capital Event means the depletion of the equity (after the callable capital has been completely drawn down by the NBFC) of the NBFC.

    Terms and Conditions:

    i. The NBFC shall not take any exposure against the qualified capital unless it has obtained a certificate from its statutory auditor that all the requirements have been complied with;

    ii. The certificate shall be supported by a legal opinion from a reputed law firm and a copy of the certificate along with the legal opinion shall be submitted to the commission: and

    iii. With regard to its qualified capital, the NBFC, in relevant notes to its financial statements, shall make disclosures, which are necessary for the users to understand its salient features.

  • SECP, ADB organize consultation workshop on financial market development

    SECP, ADB organize consultation workshop on financial market development

    KARACHI: The Securities and Exchange Commission of Pakistan (SECP) and Asian Development Bank (ADB) jointly organized a workshop for stakeholder consultations on Financial Market Development 2020-2025, a statement said on Thursday.

    The long term roadmap will be focusing on demand and supply measures to broaden and deepen the financial system in Pakistan.

    Senior level representatives from the ADB, State Bank of Pakistan, SECP and representatives of stock exchange, central depository, national clearing company and market participants attended the brainstorming session.

    In his welcoming remarks, SECP Chairman Aamir Khan affirmed that SECP’s foremost obligation remains towards building a regulatory environment that is sound, efficient and cost-effective.

    “Yet, I am equally passionate about ensuring that it is empowering for business growth. One must not be sacrificed at the cost of the other. We need to be fiercely vigilant in the pursuit of transparency, yet be tirelessly focused on reducing regulatory barriers and cost of doing business,” said the SECP Chairman.

    Regarding the projected roadmap, Khan opinioned that supporting multi-stage financing needs of start-ups and SMEs, increasing the number of retail investors, strengthening the role of institutional investors, creating an active bond market and promoting infrastructure-financing vehicles would be core constituents of the future roadmap.

    However, he emphasized, the roadmap must entail a broad and deep consensus between the SECP, and other relevant stakeholders in the public and private sectors.

    SECP Commissioner Securities Market, Shauzab Ali, gave his views on SECP’s approach to the reform plans already being undertaken by the regulator, challenges and opportunities.

    A team of international experts facilitated the workshop with a view to consolidate market feedback on the various on the supply and demand side constraints, along with recommendations for reform.

    ADB Deputy Country Director for Pakistan, Asif Cheema, stated that the proposed Financial Markets Development Program is in line with ADB’s Strategy 2030, which prioritizes the development of the financial sector and capital markets to support the development of the private sector and enhance financial stability.

    This program will build upon ADB’s earlier support for development of Pakistan’s capital markets over the past two decades.

    Cheema also reiterated the need for government ownership for implementation of the master plan.

  • SECP directs life insurers to provide details of window Takaful operations

    SECP directs life insurers to provide details of window Takaful operations

    ISLAMABAD: Securities and Exchange Commission (SECP) has directed life insurers to provide details of their Family Takaful operations.

    The SECP issued Circular No. 15 dated November 18, 2019 and amended rules for financial reporting of family window Takaful operations by life insurers.

    The regulator amended the rules and directed to insurance companies having window Takaful operations to:

    — report its assets, liabilities, revenues and expenses separately for each segment of its conventional business and Takaful business;

    — to comply with the provisions of these rules or such other conditions as may be imposed by the Commission from time to time.

    The SECP under Takaful Rules 2012 also imposed following conditions on life insurers related to financial reporting of their window Takaful operations:

    1. Life insurers authorized to carry on window takaful operations shall include the Family Takaful results in their published financial statements as follow:

    a. The assets and liabilities of the window family takaful operations shall be consolidated with the assets and liabilities of the conventional operations in the statement of financial position of the life insurer.

    b. The incomes and expenses of the window family takaful operations shall be consolidated with the incomes and expenses of the conventional operations in the profit and loss account of the life insurer.

    c. Supporting notes where considered necessary for understanding of the users of financial statements shall be included as part of the notes to the financial statements; and

    d. The segment disclosure for Family Takaful Operations in accordance with the requirements of IFRS 8- Operating Segments shall be included in the financial statements.

    The SECP further directed that in the financial statements the retained earnings of the Participant Takaful Fund (PTF) shall be classified as insurance liability and included in the total liabilities of the Window Family Takaful Operations. Balance of the Operator Sub-Funds under the Window Family Takaful operations, shall be classified as part of shareholders’ equity of the life insurer presented separately into (i) retained earnings attributable to shareholders – ledger account D; and (ii) other components.

    The regulator further directed that life insurers shall separately prepare financial statements for Family Takaful operations as if these are carried out by a standalone Takaful Operator and shall be annexed with the insurer’s annual/interim report (as applicable). Supporting notes where considered necessary for understanding of the users of separate financial statements shall be included as part of the notes to the separate financial statements.

    “Accordingly, all life insurers undertaking Family Takaful business through window operations are directed to ensure that the financial statements for the periods commencing January 01, 2020 with the SECP under the provisions of applicable laws are in compliance with the conditions placed above.”

  • SECP warns public against investing in ponzi schemes

    SECP warns public against investing in ponzi schemes

    ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) on Tuesday warned general public not to invest in fraudulent investment and ponzi schemes that are promising hefty profits and unrealistic incentives to trap innocent people.

    The SECP said that it has come to the regulator knowledge that companies namely M/s. BH Online Jobs (SMCPrivate) Limited, Corporate Automobiles (Private) Limited and Best Day Innovative Solutions (Private) Limited are engaged in unauthorized and dubious business activities.

    The SECP received numerous complaints that these companies are offering investment plans such as leasing/financing of cars, motorcycles, houses etc. and involved in illegal banking business without lawful authority.

    These activities are prohibited and contrary to the object clause of their Memorandum of Association.

    These entities trap people by offering high rates of return with little risk to investors.

    They market their schemes through local newspapers, social media, websites and pamphlets etc.

    The SECP has already initiated legal proceedings for winding up these companies.

    Moreover, the SECP has also received a number of complaints and queries regarding an entity B4U.

    This entity is raising unauthorized deposits from the general public in the name of different investment plans.

    It is clarified that “B4U Trades” is not registered with the SECP.

    The general public is hereby cautioned in their own interest and advised not to be misled by such schemes.

    This warning is being issued to safeguard the interests of all stakeholders, who are presently dealing with these businesses.

    The SECP has time and again clarified that mere registration of a company with it, does not necessarily mean that these companies are allowed to take illegal deposits from general public.

  • SECP approves regulations for small companies to raise capital

    SECP approves regulations for small companies to raise capital

    ISLAMABAD: Securities and Exchange Commission of Pakistan (SECP) has approved listing regulations for small companies to raise funds through capital markets.

    A statement on Tuesday said that the SECP had approved the Growth Enterprise Market Listing Regulations to enable Small and Medium Enterprises (SMEs), Green field projects, Not for Profit and other companies to raise capital through capital markets conveniently.

    SECP has advised Pakistan Stock Exchange (PSX) to arrange publication of new regulations in the official Gazette of Pakistan to replace PSX’s existing regulations governing listing and trading of equity securities of SMEs.

    The Growth Enterprise Market regulations designed especially to facilitate small enterprises, startups and green field companies that are aspiring to raise funds through capital markets but cannot fulfill the cumbersome conditions for listing on the Main Board of PSX.

    Hence, in addition to the main board of PSX, the Growth Enterprise Market (GEM) will be a second board at PSX for listing and trading of equity securities. However, the trading screen for both boards will be same.

    The new board provides a more conducive regulatory environment as compared to the main board.

    For listing on GEM board, any public limited company having audited accounts for the last two financial years and post issue paid up capital of at least Rs25 million is eligible.

    The minimal fee for listing on GEM board is Rs50,000, that is significantly low as compare to listing on PSX main Board, where minimum listing fee is Rs200,000.

    Moreover, to facilitate the issuers, any person licensed with the SECP as securities broker or consultant to the issue can act as Advisor.

    The issuer may offer, by way of information memorandum, only 10 percent of the post issue paid up capital to the eligible investors. The said board also allows green field project and non-profitable companies to raise funds.

    Moreover, the companies listed on GEM board may graduate to the main board subject to the fulfillment of prescribed criteria. However, reverse migration is not allowed.

    In order to create liquidity on the GEM board, the concept of eligible investor has been introduced and minimum lot size has been linked with the main board of the PSX, which is currently 500 shares.

    Eligible investor includes all institutional investors and eligible individual investors registered with NCCPL that have financial strength or expertise.

    The post listing requirements of GEM board are also relaxed as compared to the main board such as non-applicability of code of corporate governance, submission of half yearly progress report as compared to quarterly progress report.

  • SECP introduces concept of trading only brokers for expanding investor base

    SECP introduces concept of trading only brokers for expanding investor base

    ISLAMABAD: Securities and Exchange Commission of Pakistan (SECP) has introduced a concept of trading only brokers for expanding investor base at the capital market.

    In the proposed regime, to provide maximum facilitation to small sized brokers, which would be categorized as trading only brokers and shall not retain custody of client assets, the minimum capital requirements for a brokerage license are being reduced to Rs15 million, said a statement issued by the SECP on Wednesday.

    Further, such brokers shall have the flexibility to have a satisfactory QCR rating auditor. These brokerage houses would be allowed to carry out transactions in all markets, including derivatives and leveraged products, with no restriction on number of branches, the SECP said.

    It said that the SECP had undertaken a reform agenda to revitalize the capital market and promote expansion of investor base. It is felt that small and medium sized brokerage houses, alongside large ones, have a critical role to play in this regard.

    Based on representations received from various stakeholders including small sized brokers and recommendations of the Stock Market Reform Committee, the SECP issued a concept paper to introduce categorization of brokers for addressing the issue of custody of client assets.

    This concept is in line with international best practices and tailored to local market requirements, it added.

    The SECP said that under the proposed concept the small sized brokers would be allowed to provide securities and futures advisory services by charging a fee and sell/distribute financial products and also act as consultants to the issue.

    Several compliance requirements relating to client asset segregation, clearing membership, depository participants etc. shall not be applicable on trading only brokers and they would also not be subject to multiple audits/inspections during a year.

    For promoting ease of doing business for small sized brokerage houses, the SECP had earlier removed the requirement to provide separate net capital balance certificates which is now required to be made part of audited accounts of brokers. Requirement for auditors to provide limited assurance report of brokers has also been abolished.

    Furthermore, two additional categories i.e. trading and clearing broker and trading and self clearing broker have been proposed which shall be subject to enhanced net worth, corporate governance, compliance and rating requirements as they would be retaining custody of clients assets.