47. Pakistan Economic Survey 2011-12 - Consultancy Services in ...

Pakistan Economic Survey 2011-12promulgated with the signing of the bill by thePresident of Pakistan on May 7, 2012. Thedemutualization bill was approved on March 27,2012, in a joint session of the Parliament.The demutualization law provides a framework forthe corporatization, demutualization andintegration of the stock exchanges and had beendrafted by the SECP after consensus with all thestakeholders. The law requires the stock exchangesto be demutualized within 119 days of itspromulgation in line with pre-defined timelinesspecified for completion of various milestonesinvolved in the demutualization exercise.At present, the Pakistan stock exchanges areoperating as non-profit companies with amutualized structure wherein the members havethe ownership as well as trading rights. Thisstructure inherently creates conflict of interest asmembers predominantly control the affairs of thestock exchange which results in lack oftransparency in the operations of the stockexchange and compromises investors’ interest.Also, due to lack of resources our exchanges havenot been able to grow to the expectations ofinvestors, as trading activity is mostly concentratedof these exchanges with the dominant share goingto the Karachi Stock Exchange.Corporatization and demutualisation of stockexchanges would entail converting the stockexchanges’ structure from non-profit, mutuallyowned organizations to for-profit entities owned byshareholders. Demutualization would result inenhanced governance and transparency at the stockexchanges and greater balance between interests ofvarious stakeholders by clear segregation ofcommercial and regulatory functions andseparation of trading and ownership rights.Demutualization will assist in expansion of marketoutreach, resulting in larger number of investors,improved liquidity and better price discovery. Ademutualized stock exchange will be in a betterposition to attract international strategic partnersand good quality issuers. Demutualization will alsofacilitate consolidation of brokers leading tofinancially strong entities.Demutualization is a well-established global trendand almost all stock exchanges worldwide operatein a demutualized set up. The enactment of this lawwill bring the Pakistan capital market at par withother international jurisdictions such as India,Malaysia, Singapore, the US, the UK, Germany,Australia, Hong Kong, and Turkey.Listing Guide BookIn order to facilitate the issuers/offerers ofsecurities and to create awareness among thegeneral public about the process of initial publicofferings (IPOs), a listing guide book (LGB) hasbeen published by the SECP. LGB not onlycontains general information about the purpose andbenefits of listing but also contains all major legalrequirements applicable to IPOs and listings.Box-1Measures to encourage New Equity Listings:Various steps are being taken to encourage new listings which include the following:The management of unlisted public companies is being approached through stock exchanges tomotivate them for listing at the stock exchanges. An IPO Summit has been organized to identifypotential IPOs and to attract them to list their companies on the stock exchangesVarious regulatory bodies such as PTA, OGRA, DGPC, PPIB, SBP and BOI have been approached sothat their regulatees can be motivated for listingFormation of a technical committee, comprising members from all the three stock exchanges and thecommission to take necessary steps for encouragement of new listing. Such steps includeo revision of the existing regulatory framework for new listingo introduction of SME board for listing of small capital based companies and venturecompanieso amendments in the listing regulations for reviewing the minimum allocation of capital to thegeneral public88