SECP and PSX working on categorizing brokers

Current figure of 360 active brokers, the PSX and SECP want it reduced to a manageable 60-70


The Securities and Exchange Commission of Pakistan (SECP) and the Pakistan Stock Exchange (PSX) are working on categorizing the entire brokerage industry into three categories; A, B, and C, while the criteria of categorization is based on their liquidities and cash assets. The aim is to bring down the current figure of 360 brokers to just 60-70 brokers, as the PSX lacks the required human resource to effectively monitor and audit 360 active brokers every year.

“All the brokers have been given a timeline by the SECP to enhance their liquidity positions within the next 18-20 months, as the given timeline expires, the SECP and PSX will announce their categories,” PSX Managing Director Nadeem Naqvi told Pakistan Today and Profit Magazine in an exclusive meeting held at PSX building, Karachi.

During the meeting, he informed, “As per the new securities regulations, the SECP had already mandated a specific timeline to the brokerage regarding the categorization.”

“Originally, the idea was for 20-24 months, out of which 7-8 months have already passed by, compelling the brokerage houses to be compliant with the new and much-needed development. Moreover, the timeline of categorization is expected to expire within a year, give or take a few months”, he added.

“In Pakistan’s case, the size of the registered companies is very small, or on the contrary, the size of our brokerage industry is too big,” he added.

“It is a daunting task to audit each and every one of the 360 active brokers and to report them regarding their work in just a year. We don’t have enough human resource at the PSX to handle such a big task. It is very difficult for us to send notices to all of them. That; along with getting 300 reports every two weeks or every two months, is the reason sometimes most of them don’t receive notices,” Naqvi claimed. He added that this reduction would enable effective monitoring and auditing while eliminating unnecessary risks involved.

“This would be critically important for all the retail investors of the country, as the retail investment is a very risky business for individual investors,” he said.

Category ‘A’ will have to require a minimum capital of Rs 100 million or more, allowing them brokerage, custody of shares, clearing of shares, investment banking, underwrite and corporate finance and all that a big brokerage house can do.

Category ‘B’ will be required a minimum capital of Rs 50 million and above for them to be allowed to only conduct the brokerage business, clearing of shares, custody of shares, research, and investment in equity shares.

Category ‘C’ will be required a minimum capital below Rs 50 million and they will not be allowed the clearing rights, etc. But the question remains, how will they do the clearing? For that purpose, the SECP has asked the Central Depository Company (CDC) to form a team of professionals for the clearing. A CDC subsidiary is to do the clearing or custodial work for all these small brokerage firms, he said.

He admitted being unaware of how many brokerage houses would fall under each of the aforementioned categories.

“As things currently are, it is hoped that 30-40 might come fall in the ‘A’ category, 50-60 might fall in ‘B’ category, while the rest will inevitably end up in ‘C’ category,” he stated.

He said the PSX will not tolerate anybody, especially the brokers, to manipulate the market or the investors. In this connection, the SECP and PSX have issued several guidelines for the investors. “Market can go up or down, but we are trying to manage and secure the custody of equities of retail investors, so the idea is to focus more on regulations in this regard.

“Among other critical measures, the SECP is also enhancing the capacity of Joint Inspection Teams (JIT), so that more and more spot inspections can be placed. In this connection, the SECP has asked us and the CDC to conduct the audit of all the brokers once a year,” he claimed.

He further said that if the investors have any complaints against the brokers, it is our humble request that they immediately inform the stock market.

He said that if the brokers are not giving a statement of CDC or other documents to the investors in writing, they (investors) should immediately let us know and the required action would be taken as we promised.


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