ISLAMABAD: The joint session of the parliament has approved the Stock Exchanges (Corporatisation, Demutualisation and Integration) Law on Tuesday.
This landmark achievement was long awaited since the passing of the bill by the National Assembly in October 2009.This law is part of the Securities and Exchange Commission of Pakistan’s (SECP) efforts to bring about structural and regulatory changes through legal reforms in the non-bank financial market and the capital market. Other draft laws awaiting approval include Securities Law, Futures Trading Law, SECP Law and Corporate Rehabilitation Law.
The demutualisation law provides a framework for the corporatisation, demutualisation and integration of the stock exchanges and had been drafted after consensus with all the stakeholders. The law requires the stock exchanges to be demutualised within 119 days of its promulgation in line with pre-defined timelines specified for completion of various milestones involved in the demutualisation exercise.
Presently the Pakistani stock exchanges are operating as non-profit companies with a mutualised structure wherein the members have the ownership as well as trading rights. This structure inherently creates conflict of interest as members predominantly control the affairs of the stock exchange, which results in lack of transparency in the operations of the stock exchange and compromises investors’ interest. Also, due to lack of resources our exchanges have not been able to grow to the expectations of investors as trading activity is mostly concentrated in three buildings of these exchanges with the dominant share going to the Karachi Stock Exchange.
Corporatisation and demutualisation of stock exchanges would entail converting the stock exchanges’ structure from non-profit, mutually owned organisations to for-profit entities owned by shareholders. Demutualisation would result in enhanced governance and transparency at the stock exchanges and greater balance between interests of various stakeholders by clear segregation of commercial and regulatory functions and separation of trading rights and ownership rights.
Demutualisation will assist in expansion of market outreach, resulting in a larger number of investors, improved liquidity and better price discovery. A demutualised stock exchange will be in a better position to attract international strategic partners and good quality issuers. Demutualisation will also facilitate consolidation of brokers leading to financially strong entities. – Dailytimes
