SECP Introduces “Trading Only” Brokers For Expanding Investor BaseNovember 7, 2019
The Securities and Exchange Commission of Pakistan (SECP) has been trying to revitalize the capital market and expand the investor base. Small and medium-sized brokerage houses, alongside large ones, have a critical role to play in this regard.
Based on representations received from various stakeholders, including small-sized brokers and recommendations of the Stock Market Reforms Committee, SECP has issued a concept paper to categorize brokers to address the issue of custody of client assets. This is in line with international best practices and tailored to local market requirements.
In the proposed regime, in order to provide maximum facilitation to small-sized brokers, which will be categorized as Trading Only brokers and shall not retain custody of client assets, the minimum capital requirement for a brokerage license is being reduced to Rs. 15 million.
These brokers will have the flexibility to have a satisfactory QCR rating auditor. These brokerage houses will be allowed to carry out transactions in all markets, including derivatives and leveraged products, with no restriction on the number of branches.
Moreover, they will be allowed to provide securities and futures advisory services by charging a fee and sell/ distribute financial products and also act as consultants to the Issue. Several compliance requirements relating to client asset segregation, clearing membership, depository participant, etc. shall not be applicable on Trading Only brokers and they will also not be subject to multiple audits/inspections during the year.
For promoting ease of doing business for small-sized brokerage houses, SECP had removed the requirement to provide separate Net Capital Balance certificates earlier, which is now required for audited accounts of brokers. The requirement for auditors to provide limited assurance reports of brokers has also been abolished.
Furthermore, two additional categories, i.e. Trading and Clearing broker and Trading and Self Clearing broker have been proposed which shall be subject to enhanced net worth, corporate governance, compliance, and rating requirements as they would be retaining custody of client assets.
These steps are aimed at strengthening the brokerage industry, enhancing the commercial viability of brokers, improving regulatory compliance and ensuring robust growth of the capital market. The SECP shall initiate a consultative process for finalizing the concept paper in the coming weeks.
Source: Pro Pakistani