The stock traders at Pakistan Stock Exchange (PSX) went on a strike on Monday against the Securities and Exchange Commission of Pakistan’s (SECP) decision to fix brokerage commission.
Last week, the PSX issued a notification regarding the implementation of a standard range/scale of brokerage commission. In order to support the growth of the industry and promote competition, PSX’s proposal to put in place a standardized scale of brokerage commission, which can be charged by securities brokers from their clients, was approved and got implemented yesterday (October 14, 2019).
The prescribed minimum rate for brokerage commission that securities brokers can charge from their customers upon execution of orders is 3 paisa per share or 0.15% of the transaction value, whichever is higher, up to 2.5% of the transaction value.
In order to provide maximum facilitation to the market, certain transactions have been exempted from this regime such as ready to futures arbitrage, while the standardized commission is only applicable on one leg of transactions in the Deliverable Futures Market and intraday squared transactions in Ready Market.
This measure has been approved after conducting an exhaustive stakeholder consultation process with the market participants.
PSX and SECP had observed that many brokerage houses were charging nominal or zero commission rates, which was adversely affecting true competition and creating a disadvantage for market participants in the form of disparity in service standards.
This implementation of a standard range of commission will be helpful in enhancing the quality standard of brokerage services including research, encouraging expansion of distribution network for brokerage services, improving proficiency and technical infrastructure of brokers and maintaining a minimum level of governance and regulatory requirements. All these ensuing reasons will contribute to the economic progression and benefit investors at large in the long run.
However, the stock traders went the other way and started protesting against the SECP’s decision to fix the brokerage commission and demanded a withdrawal of the decision. The traders were of the view that all airlines have different fares depending on the level of comfort and services, etc. Same is the case with different car manufacturers, hospitals and other parts of the industry. Similarly, governments all over the world cannot and should not have any domain or access to fixation of ceilings.
It always depends on demand and supply and the client’s right to pay more or less according to the services offered. The stock traders demanded SECP withdraw its decision as according to the PSX traders the regulator has no power to determine the commission on sales of shares.