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      Specialized Companies Division
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 About The Division

The Securities Market Division (SMD) is responsible for monitoring, regulating, and developing the securities market. It regulates the primary and secondary markets as well as market intermediaries through registration, surveillance, investigation, enforcement, and rule making, with the objective of protecting investor interests. The SMD also processes and grants approvals to prospectuses for public offering of both debt and equity securities. In addition, it institutes appropriate regulatory reforms to develop and promote the market, engender investor confidence and instill transparency, effective risk management and good governance at the three stock exchanges, Pakistan Mercantile Exchange, Central Depository Company and National Clearing Company.

The division has three departments:

 Functional profiles
  These are the functional profiles of various wings of the SMD’s departments.
 Policy, Regulation and Development Department

It formulates the regulatory framework of the three stock exchanges, the CDC and the NCCPL. This entails devising regulatory framework for these capital market entities for improved risk management in their operations and procedures, introduction of new products and systems, good governance, increased transparency and improved investor protection etc. The SEDC is also responsible for continuously reviewing and revamping the existing regulatory framework in view of the changing market needs and to keep abreast of international developments, including compliance with relevant IOSCO Objectives and Principles of Securities Regulation.

The wing is actively involved in the development of new products and systems for the equity markets, aimed at providing new avenues of liquidity and investment alternatives to the investors and the market participants, and improving efficiency and efficacy of the procedures in place at these entities. This includes formulating detailed methodology/product or system design for the introduction of new financial products (leverage, equity etc.) and systems in collaboration with these entities and other relevant stakeholders.

It processes registrations of the capital market entities in accordance with the eligibility requirements set out in the respective laws. In order to effectively discharge its functions, the wing liaises closely with the boards of directors and managements of these entities and other governmental agencies and ministries. The SEDC through active representation on various forums, committees and focus groups facilitates continuous review of the capital markets for proactive identification of areas for growth and development of the capital markets. The wing exercises the SECP’s powers to order suspension and delisting of securities of the non-compliant companies at the stock exchanges in the best interests of the market and investors.

It formulates the regulatory framework and for continuously reviewing/revamping the existing regulatory framework of the Pakistan Mercantile Exchange Limited (PMEX) for improved risk management, introduction of new products and systems, good governance and transparency, improved investor protection and for accommodating the changing local and international market needs.

The wing is involved in diversifying the existing product portfolio of the PMEX in commodities and currencies by introducing products targeting hedging and speculative needs of various market segments for enhancing activity and for broadening the investor base. This includes introduction of new commodities and currencies futures contracts and changes to the contract specifications of the existing contracts in line with the best international practices and suitability of these contracts in accordance with the local market needs.

The wing also processes registrations of commodities exchanges on behalf of the SECP. It also formulates the product design and regulatory framework for introduction of derivative products.

 Public Offering and Regulated Persons Department

It monitors the trading activities of specified officers and more than 10% shareholders of all listed companies to protect the interests of small shareholders of listed companies. Such beneficial owners are discouraged to make a windfall gain. Thus, in compliance with section 103 of the 2015 Securities Act every director, chief executive, company secretary etc. and every person who is a beneficial owner of more than 10% of a listed equity security is required to file a return of beneficial ownership within 7 days of the attaining of status of beneficial owner and to report changes in shareholding within 7 days of the change.

The said returns of beneficial ownership are examined to detect the cases where the gain has been made on account of purchase and sale or sale and a purchase transaction made within the period of six months. .Pursuant to the provisions of section 105 of 2015 the Securities Act, the beneficial owners are required to report and tender the amount of such gain to the SECP for onward credit the same to the Federal Consolidated Fund.

It registers brokers and agents of stock exchanges and brokers of mercantile exchange. It also handles investor complaints against brokers of stock exchanges and mercantile exchange. The registration of brokers and agents establishes a direct regulatory nexus for ensuring investor protection and observance of Code of Conduct by brokers and agents. The wing plays an instrumental role in ensuring effective resolution of investor complaints and grievances, particularly those of small investors.

In an effort to ensure investor protection and provide relief to aggrieved investors, it works in close coordination with stock exchanges. In case of defaulting members, it diligently monitors default procedures to provide relief to investors aggrieved by such defaults.

It deals with the cases regarding approval of prospectuses for public issue/offer of securities. The prospectus of any company inviting public subscription for its securities is required to be approved by the SECP under the 2015 Securities Act, prior to its issue, circulation and publication. It also processes cases regarding issue of securities outside Pakistan under the Securities Act, registration of Special Purpose Vehicles (SPV), the underwriters and the registrars and transfer agents. In addition, it also regulates mattes under the 1996 Companies (Issue of Capital) Rules, pertaining to initial public offerings and cases of making more than one application by a single applicant for subscription of shares. It is also responsible for the development of primary market both equity and debt.

It is also responsible for devising the SECP reform agenda for the organized development of an active and transparent secondary debt capital market in Pakistan. The wing takes reform initiatives to address prevailing shortcomings in the existing structural, regulatory and operational framework of the debt market for more synchronized development of the Pakistani capital markets as a whole. It develops and reviews policies and regulations for the debt market, including new product development and system enhancements etc. based on international legal standards and best practices. The roadmap prepared by the wing involves extensive stakeholder consultation to ensure effective implementation of the same through task identification with the capital market infrastructure institutions and other relevant stakeholders.

Surveillance, Supervision and Enforcement Department (SSED)

It is responsible for monitoring and vigilant surveillance of the trading activities at the three stock exchanges to ensure that market participants are not exposed to manipulation or any unfair play. It keeps a close watch on price movements of scrips, monitors abnormal prices and turnover through state-of-the-art surveillance software. It also detects cases of market manipulation, front running and insider trading and conducts detailed investigations and inquiries in such cases.

It is primarily responsible for closely monitoring the index movement based on the impact of the media and research reports. It circulates a daily stock market report and summary of unusual movement or pattern in the stock market such as sudden rise or drop in the index, volume of a particular sector or scrip, for onward analysis to the Market Surveillance Wing. It analyzes corporate announcements made by companies and their impact on the stock price, researches on developed jurisdictions, maintains required database for the Market Surveillance Wing. It also reports market position at the close of market, including foreign investment, KSE100 index drivers, summary of MTS and futures to the head of department on a daily basis.

This wing closely observes the news media, including TV, newspapers, the Internet etc. to prepare reports related to stock market, companies and macroeconomic factors relating to capital market. Such reports are forwarded to the Market Watch and Development Wing and Market Surveillance Wing for analysis. It also analyzes research reports of brokerage houses, examines the periodical financial statements and reports important features to the relevant wings. In addition, it prepares and presents case studies to all officers of the department on enforcement actions taken on market abuse in various jurisdictions.

It ensures compliance with relevant rules and regulations by the stock exchanges and other market intermediaries to strengthen the market oversight and enforcement through offsite inspection. The offsite inspection mostly comprises of reporting, as per prescribed format and frequency to the SECP by the regulated entities. Such reports are assessed and analyzed to identify and provide compliance status, which may lead to identify potential high-risk areas. In order to infuse discipline within stock exchanges and their members, the wing also plans to undertake inspection of books and records of the members of the stock exchanges. Onsite inspection involves a detailed and comprehensive review of policies, procedures and internal control systems, established to assure compliance with the rules and regulations and to assess financial health of the entity.

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