PSX Eases Eligibility Requirements for Investors in GEM Board Companies

The Pakistan Stock Exchange (PSX) has significantly eased the requirements for the eligibility of accredited individual investors investing in companies on the Growth Enterprise Market (GEM) Board.

The move was made with the approval of the Securities and Exchange Commission of Pakistan (SECP). As per the new definition, the accredited investors include the individual investors who have assets of at least Rs. 5 million which includes but is not limited to the value of securities held by these investors in their CDC investor accounts or sub-accounts.

With the revised eligibility criterion, the total assets of the investors are to be considered in the assessment of their eligibility to invest in GEM Board companies. Real estate properties, vehicles, and other assets can also be included to define the assets of accredited investors.

This amendment in the eligibility requirement of accredited individual investors allows more investors to partake in the pre-listing process of the companies to be listed on the GEM Board. It will also broaden the investor base in the trading of shares of the GEM Board companies at the PSX to generate increased liquidity and higher share volumes.

Accredited investors will now self-declare to the Securities Brokers that they hold assets of at least Rs. 5 million in order to be eligible to take part in the listing of the GEM Board companies or in their post-listing, trading activity, and also understand the risks associated with the GEM Board and companies.

Apart from the regulatory change, the PSX has also notified the modes of acceptance of self-declaration by the Securities Brokers.

The auto-marking of individual investors taking part through e-IPO in the GEM primary market has been announced as well. Individual investors with securities worth at least 40 percent higher than the minimum requirement of Rs. 5 million will be auto marked as accredited individual investors in the National Clearing and Settlement System (NCSS) of the National Clearing Company of Pakistan Limited (NCCPL).

The Securities Broker can unmark an investor in NCSS of the NCCPL if they believe the investor is ineligible to trade on GEM, based on their Know Your Customer (KYC)/Customer Due Diligence (CDD) checks. The Securities Broker will allow such ineligible investors to liquidate their GEM shares with no bearing on the Securities Brokers. These steps will lead to convenience in terms of the operational practices of the Securities Brokers. With this amendment, it is expected that the Advisors will now take the lead and facilitate issuers and investors in increased listings and investments in the GEM Board.

Managing Director and Chief Executive Officer PSX, Farrukh H. Khan, described this amendment to the eligibility criteria of accredited investors and stated, “The GEM Board is an important innovation for SMEs to raise debt and equity capital from the market. It also provides exciting investment opportunities for accredited investors. The amendment in the eligibility of accredited individual investors will help improve participation in GEM Board companies. The self-declaration process further simplifies the operational management for Securities Brokers”.

He remarked that he is “confident that these steps will increase the number of accredited individual investors and enhance liquidity and price discovery in the GEM Board secondary market”.

“Pakistan Stock Exchange, as a frontline regulator, always gives due attention to feedback from market participants and supports positive changes in its regulatory framework to ease and enhance them in order to encourage growth of the capital markets in Pakistan. Accredited investors must take this as an opportunity towards increased participation in the growth story of the GEM Board companies in the pre-listing phase,” Khan explained .

He added that in the post-listing, trading phase, the accredited investors must capitalize on this opportunity and benefit from investing in the GEM Board companies for greater liquidity on the GEM Board.