SECP Reviews New Regulations for IPOs in Pakistan

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

Especially the newly implemented e-IPO system, which allows for an efficient, easy and hassle-free mechanism for making applications for subscription of shares in IPOs by the general public, said a statement issued by SECP on Sunday.

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 long-term funding available 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 PSX’s regulatory framework.

The SME Board, renamed Growth Companies Board (GC Board), would facilitate listing by 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 a track record of profitability and other aspects of corporate viability essential for listing requirements in certain jurisdictions.

It was pointed out by the Policy Board members that other than the jurisdictions “selected” by staff, there were several other jurisdictions that did not have profitability as a listing criterion. As long as the disclosure requirements were adequately fulfilled, profitability or not would be duly reflected in the price.

The Policy Board Chairman observed that in line with accepted global practices, SECP should engage in disclosure-based regulations rather than merit-based regulations 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 was 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 corporate sector 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 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 a most 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, rationalized and made considerably more issuer-friendly. The Commission needs to revamp its processes and approach in order to expeditiously deal with and clear new issue applications.

The Policy Board Chairman also expressed the opinion that to make a difference and improve the situation significantly, all this would not be necessary if the mindset and approach of the Commission’s regulatory staff changed to becoming fair and helpful in their approach.

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