PSX Mulls Changes to Defaulters’ Rules for Protecting Minority Shareholders

The Pakistan Stock Exchange (PSX) is considering changes to its defaulter regulations to protect the rights and interests of minority shareholders.

When a listed company is guilty of committing any of the 14 specific irregularities listed in the PSX Rule Book, the exchange places them in the defaulters’ segment.

According to an official notification, PSX has proposed splitting the current defaulters’ segment into two separate counters for better transparency and the classification of non-compliant listed companies. The new categories should be called non-compliant companies and winding-up companies.

Under current regulations, a company is placed in the defaulters’ segment if it fails to begin commercial production within 90 days of the timeframe disclosed in the listing prospectus. The same is true for businesses that have suspended operations for a year. The PSX wants these two conditions to be removed because companies disclose their financial performance on a regular basis and, as a result, their placement in the defaulters’ segment provides no material information.

The PSX also suggested removing events such as CDS suspending eligibility for Central Depository Systems (CDS), and the Securities and Exchange Commission of Pakistan (SECP) issuing a show-cause notice for the initiation of winding-up proceedings.

Instead, the bourse has proposed eight events that should result in a firm being classified as a non-compliant company. Some of these events include the failure to hold annual general meetings, the failure to submit annual audited financial statements, the failure to pay annual listing fees or penalties for two years, and the failure to comply with any provision of Chapter 5 of the PSX regulations dealing with a public listing. Other proposed events that should result in a firm being placed in the non-compliant segment include failure to join CDS, revocation of CDS eligibility, cancellation of its license by the SECP, and the issuance of a winding-up order by the apex regulator.

For the placement of companies in the winding-up segment, PSX has proposed three trigger events such as the initiation of voluntary winding-up proceedings through a special resolution and the filing of a winding-up petition by either SECP or a creditor/shareholder.

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