Stock Exchanges (Corporatization, Demutualization and Integration) Law approved by the Parliament

The Stock Exchanges (Corporatization, Demutualization and Integration) Law has been approved in a joint session of the Parliament today. This landmark achievement was long awaited since the passing of the bill by the National Assembly in October 2009.This law is part of the SECP’s efforts to bring about structural and regulatory changes through legal reforms in the non bank financial market and the capital market. Other draft laws awaiting approval include Securities Law, Futures Trading Law, SECP Law and Corporate Rehabilitation Law.

The Demutualization law provides a framework for the corporatization, demutualization and integration of the stock exchanges and had been draftedafter consensus with all the stakeholders. The law requires the stock exchanges to be demutualized within 119 days of its promulgation in line with pre-defined timelines specified for completion of various milestones involved in the demutualization exercise.

Presently the Pakistani stock exchanges are operating as non-profit companies with a mutualized structure wherein the members have the ownership as well as trading rights. This structure inherently creates conflict of interest as members predominantly control the affairs of the stock exchange which results in lack of transparency in the operations of the stock exchange and compromises investors’ interest. Also, due to lack of resources our exchanges have not been able to grow to the expectations of investors as trading activity is mostly concentrated in three buildings of these exchanges with the dominant share going to the Karachi Stock Exchange.

Corporatization and demutualisation of stock exchanges would entail converting the stock exchanges’ structure from non-profit, mutually owned organizations to for-profit entities owned by shareholders. Demutualization would result in enhanced governance and transparency at the stock exchanges and greater balance between interests of various stakeholders by clear segregation of commercial and regulatory functions and separation of trading rights and ownership rights.

Demutualization will assist in expansion of market outreach, resulting in larger number of investors, improved liquidity and better price discovery. A demutualized stock exchange will be in a better position to attract international strategic partners and good quality issuers. Demutualization will also facilitate consolidation of brokers leading to financially strong entities.

Demutualization is a well-established global trend and almost all stock exchanges worldwide operate in a demutualised set up. The passing of this law is a momentous accomplishment which will bring the Pakistani capital market on par with other international jurisdictions like India, Malaysia, Singapore, USA, UK, Australia, Hong Kong, Turkey etc.

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THK Associates (Private) Limited: Shares Registrar

THK Associates (Pvt) Limited was formed in 1989. The company is engaged in providing specialized services relating to the corporate sector and in particular acts as share transfer agent for a number of companies. THK Associates (Pvt) Limited is one of the leading service provider of Share Registrar, Transfer Agent, Balloters for IPO’s and Share Accounting Services and is managed and run by a set of professionals having indepth knowledge and expertise of organizing and managing diversified corporate activities including depository related Share Registrar activities. THK Associates (Pvt) Limited, previously an associate of KPMG Taseer Hadi & Co., has been restructured in terms of requirements of Clause XL of the Code of Corporate Governance and the shareholding of THK partners has been divested in the year 2004. Mr. Yunus Dawood, Chief Executive of DYL Motorcycle Limited, a shareholder and Director was appointed as Chairman of the Company in 2008. Mr. Javed Iqbal, former Chairman an

Alan McCoy said…

The process of demutualization is beneficial for stock exchanges in Pakistan as it would result in financial stability and transparency at the stock exchanges with greater balance between interest of various stakeholders with better trading and ownership rights.
We are the Pakistani first financial training institution which offers various trading,investment,insurance,banking and finance,stock and other Forex courses for students and industry professionals.We also think that the process of demutualization has very positive aspects and it has very wider interest in boasting country's economy.

April 13, 2012 at 6:43 PM

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