ISLAMABAD: Small brokers have raised serious reservations over the Securities and Exchange Commission of Pakistan (SECP)’s new brokers regime.
They said that the new regime would only facilitate big players and will result in concentrating the market in the hands of large brokers. They said they would oppose the new regime using all options including registering the complaint against the regulator to the Ministry of Finance, prime minister and in the court of law.
The PSX Brokers Association (PBA) has written a letter to the SECP against the proposed amendment and termed a ploy to hand over the stock market to large brokers. The PBA said that there should be separate clearing and settlement agents including banks and it should not be in the hands of large players of the same trade.
The association said that it has been proposed that Category I brokers will be dependent on Category III brokers for clearing rights of all settlements and even maintain custody of their shares.
According to the SECP new regime, brokers have been divided in three categories, starting with “Trading only” for those with minimum net worth of Rs15 million. Category II is for brokers with “Trading and Self Clearing” rights with minimum net worth of Rs100 million, while the Category III brokers have the right for “Trading and Clearing’ with minimum net worth Rs500 million.
The SECP has floated the draft amendment in the Securities Brokers (Licensing and Operations) Regulations, 2016 for public comments and feedback.
Under the new amendment, the “Trading Only” brokers can only execute its proprietary trades and trades on behalf of its clients but cannot settle executed trades or keep custody of securities or money owned by it and its customers.
The Category II brokers can execute as well as settle its proprietary trades and trades executed on behalf their clients and can keep custody of securities and money owned by it and its customers subject to such conditions as may be imposed by the SECP.
While, brokers falling under the Category III can execute as well as settle its proprietary trades and trades executed on behalf of their clients and can keep custody of securities and cash owned by it and its clients.
The new amendment also allows the Category III brokers to settle trades of other securities brokers, their clients and keep custody securities and cash owned by other brokers and their clients.
Under the new regime, a securities broker, which does not comply with financial resource requirements for Category II that is Trading and Self-Clearing will have to apply for conversion to “Trading Only” (Category I) by April 15, 2020.
The SECP has allowed all conversions and settlements in this regard by July 1, 2020, mainly related to compliance with minimum net worth and net capital balance for each category.
The minimum net worth requirement for Trading and Self Clearing (Category II) will be increased to Rs125 million from July 1, 2021.