Annual Report 2012 - Lahore Stock Exchange

Directors’ ReportSEGREGATION OF COMMERCIAL ANDREGULATORY FUNCTIONSSide by side the demutualization, the Commission alsoapproved the segregation plan of the Exchange wherebyall the regulatory functions of the Exchange have beenseparated from the commercial functions of theExchange. It may be mentioned that LSE was already theonly exchange in Pakistan to have a separate regulatorydivision, however with the approval of thedemutualization plan, LSE formalized the separation ofboth the commercial and the regulatory functions withinthe Exchange.MEASURES TO PROMOTE EASY FINANCING INTHE MARKETTo ensure easy access to financing and liquidity to themarket, the Commission and the Exchanges workedtogether to prescribe reduced cash margin requirementsand also allowed individual investors to participate asfinanciers in the Margin Trading market. Furthermore,waiver of the mandatory condition of prescribingminimum liquidity requirement for selecting securitieseligible for Margin Financing was also given under therevised rules relating to the Securities (LeveragedMarkets and Pledging) Rules, 2011.FACILITATION FOR LSE BROKERS TO SETTLEINSTITUIONAL ORDERSIn order to enable the brokers of LSE to service largeinstitutional clients without the extra financial burden ofalso making clearing on their behalf, NCCPL wasencouraged to extend the Institutional Delivery System(IDS) facility and functionality to LSE brokers. Thisinnovative solution was finally provided by NCCPLduring November 2011 whereby LSE brokers becameeligible to flag all affirmed transactions executed onBroker to Broker basis (with KSE Counterparts) for directsettlement by their respective institutional clients underIDS. With this development, LSE brokers became at parwith KSE brokers whereby they could target all suchinstitutions who avail the IDS facility to become theclients of LSE brokers as well. This measure alsofacilitates the brokers to get their margin released on thesame day after the affirmation of the trade by theinstitutional investors availing IDS functionality.INTRODUCTION OF OPTIONAL BROKER TOBROKER (BTB) FACILITY FOR INTER-EXCHANGEPROPRIETARY TRADESANNUAL REPORT 2011-12 29In order to facilitate the LSE brokers for easy settlementoptions for their proprietary trading, an optional facilityon the BTB functionality was introduced so that the LSEBrokers could choose the best option for settlement oftheir trades done in their own accounts. This initiativewas another easy facilitation provided to the brokers fortheir proprietary trading. It may be mentioned that afterthe introduction of automation of the securitiessettlement in 2010, the affirmation of all valid autoinitiatedBTB Transactions by the initiating brokers wasmade mandatory, and in August 2011 penalty forviolation of auto affirmation was introduced for allbrokers not complying with the auto initiated affirmationfor the settlement of their client orders. However,considering that some LSE brokers required the option ofsettling their proprietary trades either themselves orthrough their KSE counterparts, therefore an optionalmechanism was provided to facilitate the LSE brokers.CENTRALIZED CALCULATION AND COLLECTIONOF CAPITAL GAIS TAX FOR THE INVESTORS ONTHEIR SECURITIES TRADINGThe securities trading in Pakistan had remained exemptfrom CGT for 36 years. However, the exemption waswithdrawn and CGT was introduced from July 1, 2010onwards. After the imposition of CGT, investors wererequired to file the income tax returns along with thedeclaration of the source/evidence of investments forwhich they did not have the documented details. Due tothis, the investors reduced investments in the stockmarkets and the average daily turnover reduced alongwith the reduction in the share prices.To address the above situation, the securities marketadministrators suggested an automatic deduction of theCGT at the NCCPL level so that the investors don't feelharassed at the hands of the FBR officials. After hecticlobbying, the CGT Ordinance was promulgated underwhich NCCPL was appointed as an intermediary entity tocompute, determine, collect and deposit the CGT on thegains obtained against listed securities.As per the notified procedure, NCCPL will compute tax forall type of investors except the few financialintermediaries, foreign institutional investors and anyother person specified by FBR. The tax rate for CGT willbe 8% and 10% for investment holding up to 6 monthsand 12 months respectively till June 30, 2014. NCCPL willbe depositing the tax with the FBR periodically.