SECP adopts measures to strengthen capital markets

SECP has revamped the regulatory framework to ease out operational level requirements in order to facilitate market intermediaries and investors

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) during the past few months has undertaken reforms and initiatives aimed at strengthening capital markets in the country.

According to sources in the SECP, measures taken by the commission have resulted in a turnaround at the Pakistan Stock Exchange (PSX).

The SECP has revamped the regulatory framework to remove non-practical and burdensome requirements and ease out operational level requirements to create a facilitative environment for market intermediaries and investors.

In order to put an end to the strict regime which had been affecting working capital management and liquidity, SECP removed the additional Value at Risk (VaR) based margins which were imposed in 2017 and also abolished additional cuts on securities deposited as collateral with National Clearing Company of Pakistan Limited (NCCPL).

Furthermore, security deposit requirements in the deliverable futures segment was also reduced significantly.

Additionally, the mechanism for the imposition of liquidity margins was revisited whereby margins were only imposed on large positions while also taking into account the credit rating of clearing members.

On the product development front SECP revamped the regulations for market making and Exchange Traded Funds (ETFs) in order to remove bottlenecks.

ETF is one of the most popular modes of investment in capital markets across the globe, however, it has been non existent in Pakistan’s capital markets till now.

SECP also took another major initiative towards the development of capital markets in line with international practices by widening circuit breakers and introducing market halts.

Circuit breakers are considered to curb price discovery, making exit difficult for investors and are an inefficient mode of managing price volatility.

The prevailing circuit breakers at PSX were also considered by market participants as narrow and a hindrance to efficient price discovery and growth of the market in line with international best practices.

The SECP has approved changes in regulations of PSX and NCCPL to enable gradual widening of circuit breakers by 0.5 per cent on fortnightly basis, until they reach the level of 7.5 per cent from the existing level of 5 per cent.

Market halts were also introduced initially at the variation of 4 per cent in the KSE-30 Index. The new regime was to be effective from the third week of January 2020. 

Paving way for the development of the Shariah compliant segment in Pakistan, SECP introduced a Morabaha Share Financing product.

The lack of a Sharia compliant leverage product in the market served as a hindrance towards attracting a large pool of potential investors. Shariah compliant banking has proven to be successful in Pakistan, indicating a tremendous potential in other segments as well.

Similarly, SECP, also approved PSX regulations for the introduction of a minimum brokerage commission. The implementation of the reform is expected to bring transparency in the market.

As a part of reform measures, the margin financing product was also revamped whereby bottlenecks and hurdles were removed.

Furthermore,  the limit of investment in Sahulat accounts was also increased from Rs500,000 to Rs800,000 thereby facilitating outreach to small investors and allowing opening of accounts in a much simplified manner.


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