ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has initiated major reforms including amendments made to different regulations of the stock exchanges and CDC, etc, to improve risk management, accommodate new products, increase transparency and enhance investor protection. It is learnt here on Monday that the SECP has initiated a number of reforms for the development of the capital market during the last one year.

The SECP policy board had approved many key reforms in the past for proper regulations of the corporate sector and promotion of the capital market with improved enforcement and compliance. To promote good governance, a Fit and Proper Criteria for directors on the boards of the stock and commodity exchanges, CDC and NCCPL was introduced. All registered brokers were directed to nominate a compliance officer; and to get at least two individuals, 20 percent of employees certified from the ICM by June 30, 2011.

Under the reforms, a CFS Mk II Review Committee was constituted on whose recommendations CFS Mk-II was discontinued in the past. Moreover, a Consultative Group on Capital Markets was formed, which submitted its report on "Margin Financing" and a paper on "Capital Adequacy Regime".

The draft Securities (Margin Financing, Securities Lending and Borrowing and Pledging) Rules, 2009 have been prepared and forwarded to the MoF for approval of Federal Government. Similarly, the Stock Exchanges (Corporatization, Demutualization and Integration) Act, 2009 has being passed by the National Assembly.

The SECP has also engaged a consultant through a donor agency to revamp the regulatory framework in light of the Demutualization and Corporatization Act. Sources further said that to effectively monitor the trading by beneficial owners of listed companies, the Beneficial Ownership Module was integrated with Market Surveillance utilities for generating "Daily Beneficial Owner Trading Report".

A new asset class to the Pakistani capital market was introduced in the form of REITs. Recently relaxation have been proposed in the regulations to facilitate the market. To regulate and promote Private Equity and Venture Capital, a comprehensive set of regulations has been implemented. In order to provide stability to the stock market, SECP in consultation with Finance Ministry, registered two market stability funds. The Mutual fund industry was disciplined through various regulatory measures such as: amendments in regulations; introduction of new valuation methodology and provisioning criteria for debt securities held by CIS; improved risk management through introduction of categorisation criteria; and implementation of international best practices for protection of the investors.

Other reform initiative included introduction of the regulatory framework for Portfolio Management Services. To promote the Islamic mode of financing, Religious Board for Modarabas was reconstituted and Modaraba Ordinance, 1980 was amended. The investment banking model has been revamped to make it more viable and sustainable and regular on-site inspections for NBF Sector have been introduced and implemented.

As part of an initiative to provide alternative investment vehicle for savings and investment, the SECP is encouraging development of private pension funds. The SECP is exploring the possibility of nation-wide regulatory regime for occupational saving and pension schemes.

In case of insurance, the amendments have been made in the minimum solvency requirements and guidelines for Life Insurance and Family Takaful Illustrations were issued by the commission. On-site inspection of insurance companies has been initiated for the first time. The SECP also introduced the distribution channels. The guidelines for implementation of IFRS-4 on Annual Financial Statements of Insurance Companies were issued. On the same pattern, all pending appeals and complaints have been disposed of.

On the issue of enforcement actions, the SECP follows three-pronged approach towards enforcement: first through penalisation; second through rectification order and third through criminal prosecution, which is usually a last resort and least favoured. Orders were issued and penalties imposed on members of the stock exchanges and listed companies for violation of securities laws with reference to insider trading, price manipulation, short/blank selling, wash trades, frequent deletion of orders; and warning letters were issued to the members of the stock exchanges and listed companies for possible violations of the blank sales, wash sales, d orders and broker misconduct. Other major initiatives included launching of the eServices by SECP and some of the notable features include: reduced fee for online services compared to manual submission; separate module developed for foreign companies; increased efficiency; reduced interface with SECP officers thereby reducing the risk of corruption, etc. The awareness seminars were held in different cities of Pakistan in collaboration with CC&Is, ICMAP, ICAP and Tax Bar Associations.

On the recommendation of SECP, the federal government has abolished the stamp duty in I.C.T., on memorandum and articles of association. Stamp duty has already been abolished by provincial governments in previous years. The Companies Regularisation Scheme was re-launched to provide relief to companies who defaulted in filing of various statutory returns. The commission performed its duties with only two Commissioners though the law provides for minimum 5 and maximum 7 Commissioners. Severe financial constraints led to financial deterioration. This has been rectified during the current fiscal year.

Sources said the Futures Trading Act, the Corporate Rehabilitation Act and the Securities Act have been submitted to the government. The draft SECP Act is expected to be approved by the Policy Board and shall soon be sent to the government. The amendments in the Companies (General Provisions and Forms) Rules, 1985 have been approved by the Law and Justice Division, with the main focus to make online submission mandatory in a phased manner. Moreover, the amendments in the Group Companies Registration Regulations 2008 were made to remove jurisdictional overlaps with those under the regulatory purview of FBR. The policy framework for grant of license to an association not for profit was revised including allowing only single object instead of multiple objects. The Companies (Corporate Social Responsibility) General Order, 2009 was promulgated to prescribe disclosures of CSR activities undertaken by the companies. The companies (Investment in Associated Companies and Associated Undertakings) Regulations, 2010 were introduced. The amendments in Listed Companies (Substantial Acquisition and Take-overs) Regulation, 2008.

The amendments were made in the Regulations Governing Risk Management, Listing, General, Short Selling, and Deliverable Futures Contract of the Stock Exchanges and in the regulatory framework of CDC and NCCPL and amendments proposed in the REIT Regulations have been placed on web site for public consultation, sources added.BR