SECP reviews regime for IPOs

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ISLAMABAD: The Security and Exchange Commission of Pakistan’s (SECP) Policy Board reviewed the regulatory regime for Initial Public Offerings (IPOs) and appreciated the newly introduced reforms in the Public Offering regulatory framework.

The SECP Policy Board met in Islamabad at the SECP Headquarters yesterday under the Chairmanship of Professor Khalid Mirza.

The board took decisions in connection with several matters pertaining to the development and growth of the primary market for issuance of securities, and gave other significant directions to improve the working of the commission, inter alia, directions with respect to the commission’s dealings with law enforcement agencies.

The commission apprised the policy board that in order to make available long-term funding for expansion and growth of businesses and promote capital formation through capital markets a proposal has already been forwarded to Pakistan Stock Exchange (PSX) that seeks to broaden the scope of the existing SME Board through amendments in the PSXs’ regulatory framework.

The SME Board, renamed Growth Companies Board (GC Board),would facilitate listing of companies that do not meet the prescribed criteria of the main Board of PSX but are aspiring to raise funds through capital markets.

In this connection, SECP staff made a presentation that, among other matters, showed that a track record of profitability and/or other aspects of corporate viability were essential listing requirements in certain jurisdictions.

It was pointed out by policy board members that other than the jurisdictions ‘selected’ by staff, there were several other jurisdictions that did not have profitability as a listing criteria.

The policy board chairman observed that in line with accepted global practice,  SECP should engage in disclosure based regulation rather than merit based regulation and that this would enormously facilitate the growth of the capital market.

It was brought to the attention of the board that licenses of six brokers had not been renewed this year.

A sample of two of these cases were discussed which left the board unconvinced as to whether the action taken was justified.The oversight committee of the board was then entrusted with the task of examining all cases of license non-renewal and to take a final decision with respect to license renewal in each case.

The policy board observed that the core issue in the capital market remains the dearth of securities on the supply side as the number of new listings at PSX are minimal.

The policy board recognized the need to create awareness and understanding among the corporates about the capital markets as an avenue to meet their funding needs.

However, in addition, the policy board noted that very little has been done by either the commission or the PSX (which lacks the necessary incentive being a monopoly) to actively advocate and promote  to new issues of securities. Investment banking being lackadaisical in Pakistan, the policy board felt that that it was incumbent on the PSX, as is the case with many stock exchanges in the world that compete for new listings, to play an active role in this connection and convince potential companies in a professionally robust manner to go public and tap the capital markets.

The Policy Board, further observed that the onerous listing rules of PSX obviously needed to be greatly simplified, rationalised and made more issuer friendly; also, the commission needs to revamp its processes and approach in order to expeditiously deal with and clear new issue applications.

After some deliberation with respect to the insurance sector, it was decided that the SECP chairman, should have a meeting with the heads of the three government controlled insurance companies to determine how these companies could be assisted on a sensible and prudent basis without adversely affecting the insurance industry.

The SECP policy board, in pursuance of Section 12 of the SECP Act 1997, comprises members of the Ministries of Finance, Commerce, and Law, SBP, SECP and persons of eminence from the private sector.

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