Corporatization and Demutualization of Stock Exchanges
Demutualization is the process of converting a non-profit, mutually owned organization to a for-profit entity owned by the shareholders. The process involves not only Corporatization, which is conversion of a stock exchange limited by guarantee into an entity limited by shares but also it segregates ownership and trading rights. Hence demutualization brings balance among interest of different stakeholders in the corporate and governance structure of a stock exchange.
Demutualization is a well established global trend and has been adopted by many recognized stock exchanges around the globe. Securities and Exchange Commission of Pakistan has also been pursuing the process of demutualization of stock exchanges since 2002 in order to bring about an improvement in the governance structure and to make the stock exchanges more competitive.
In view of specific features and unique requirements of Corporatization, which necessitated the promulgation of an independent and comprehensive piece of legislation, SECP initiated the process of drafting a special legislation to enable Corporatization, demutualization and integration of stock exchanges. The Commission adopted a participative and consultative process while developing the legislation. Several detailed sessions and meetings were held with the stakeholders including the management, board and demutualization committees of the stock exchanges. The draft Demutualization Legislation was finalized after a consensus was reached between SECP and all the stakeholders. SECP has submitted the draft Law to the Government for approval.
The draft law contains provisions relating to governance structure of the demutualized stock exchange to ensure segregation of its regulatory function from its commercial function, placing restriction on sale and purchase of shares held by various categories of shareholders and empowers SECP to supervise self listing of a demutualized stock exchange.
Working Group on Debt Market and Commercial Paper
In order to identify impediments to the development of the debt market and Commercial Paper (CP), the State Bank of Pakistan and SECP in their 13th Co-Ordination Committee Meeting held on March 09, 2005, formed a working group on “Debt Market and Commercial Paper” comprising of the representatives from SBP, SECP, TFCs and CPs issuers, consultants to TFCs and CPs issues and commercial banks acting as Primary Dealers of Government bonds. The working group is actively looking into the issues surrounding debt market to suggest viable recommendations.
The SECP has formed a Committee to conduct feasibility of the introduction of exchange-traded derivatives market in Pakistan. Derivatives markets are developing in many of the emerging capital markets including India. In order to ascertain the scope and feasibility of such markets in Pakistan, the Committee is expected to conduct thorough research and analyze the introduction of exchange-traded derivative products. The Committee is expected to submit a report shortly.