The reforms introduced by the SEC, especially the initiatives to deepen the capital market and enhance institutional investments, have received a favourable response from potential investors. This is evident from the increased number of applications being received by SEC from various corporate houses for registration of Asset Management Companies (AMC) and floatation of open-end mutual funds.

The aggregate net asset value (NAV) of the mutual funds was approximately Rs. 21 billion on June 30, 2001, which moved up to Rs. 26 billion on June 30, 2002. At present, SEC is engaged in processing a number of applications seeking registration of AMCs and floatation of open-end funds.

During the past year, the Specialized Companies Division of the SEC processed four new applications for floatation of mutual funds while another two are in the pipeline. Arif Habib Investments was given permission to float two new funds, namely Pakistan Income Fund (PIF) and Pakistan Stock Fund (PSF) with nine administrative schemes. ABAMCO has been given approval, in principle, to float a second open-end fund after demonstrating a good track record with their first fund— Unit Trust of Pakistan (UTP). A new asset management company, United Asset Management Company (UAMC) has been registered and given the approval, in principle, to float a money market fund.

The trend is encouraging in light of the recent reform measures introduced by the SEC both with regard to stock market operations and regulation of the mutual fund industry. The SEC has been actively involved in promoting the mutual fund sector and creating an environment conducive to investments through collective investment schemes. Some of these developmental efforts include allowing provident funds to invest up to fifty percent of their funds in the mutual fund sector; seeking various tax exemptions for mutual funds and their investors; and amending the relevant rules and regulations to keep up with the needs of the industry.

In an effort to maintain some minimum standards for the industry, the SEC has adhered to strict eligibility criteria for entry into the sector. The credentials of the sponsors of the schemes are scrutinized in detail and the background, qualifications and expertise of personnel assessed to ensure that qualified professionals are entrusted with the task of managing the pooled savings of individual investors. Foreign technical partnership with an international asset management company is emphasized for those wishing to float an equity market open-end fund. On-going technical collaboration with foreign fund managers is considered important for transfer of technical knowledge and know-how from experienced professionals from around the world as well as to ensure that local funds adopt  international best practices in the management and governance of mutual funds. All the open-end mutual funds operating in the private sector namely UTP, PIF and PSM have been set up with international technical collaboration. It is expected that with greater expertise at their disposal these funds will be able to perform better and have a demonstrational effect on the rest of the industry.

In August 2002, the Federal Government appointed Mr. Etrat H. Rizvi as Commissioner, SEC for a period of three years. Mr. Rizvi replaced Mr. N.K. Shahani who retired as Commissioner (Insurance), SEC. During his two year stay at the SEC, Mr. Shahani served the Commission with distinction and made significant contribution towards effective regulation of the financial (non-bank) sector in Pakistan. He was particularly instrumental in the development of insurance and pension reforms in the country.

Mr. Rizvi’s most recent assignment was as the Managing Director of National Development Leasing Corporation Limited for over two years and was also Chairman of the Board of Directors of the Bank of Khyber.

Addressing a seminar on “Motor Claims and its Practical Handling”, Jointly organized by the Karachi Institute of Insurance and the Institute of Surveyors and Loss Adjustors of Pakistan in Karachi on September 26, 2002, Mr. Rizvi said, “The need to have auto insurance must be made attractive, with special attention to the element of legal liability towards third party bodily injury, death and property damage. If insurers are able to attract even 40—50 percent of the actual road users across the country, the rate of premium would also become affordable, let alone the capacity to underwrite.”

To facilitate the timely financial reporting of annual audited accounts and after considering the suggestions from the Modaraba Association of Pakistan, SEC has decided to streamline the submission/circulation of quarterly accounts. In this regard, the following directions have been issued by the Registrar of Modarabas:

1. Modarabas that are able to circulate their audited annual accounts within three months of the close of their financial year may not be required to circulate quarterly accounts for the fourth quarter. However, the Modarabas opting for circulation of audited annual accounts within three months were advised to inform the Registrar’s Office latest by July 31st 2002.
   

2. Modarabas, finding it difficult to circulate quarterly accounts to their certificate holders may, in lieu thereof, publish their quarterly accounts in two leading daily newspapers, one in English and the other in Urdu language, having wide circulation in the Province where the Stock Exchange on which the Modaraba is listed, is situated.

3. Notwithstanding the option given in (2) above, quarterly accounts must be submitted to the Registrar Modarabas and the concerned Stock Exchanges as required by the Circular No. 7/2001 dated December 13, 2001.

SEC has granted registration to SPV Limited, a wholly owned subsidiary of United Executors and Trustees Limited, to operate as a special purpose vehicle under the Companies (Asset Backed Securitization) Rules, 1999. Earlier in June 2002, SEC processed the registration of First Securitization Trust as the first special purpose vehicle under the Companies (Asset Backed Securitization) Rules, 1999.

In Pakistan, Securitization is in a nascent stage. Although the Asset Backed Securitization Rules, 1999 were notified by the SEC in December 1999, the necessary guidelines for banks/NBFIs desirous of undertaking various activities in asset securitization transactions through special purpose vehicles are awaiting finalization by the State Bank of Pakistan. After the finalization of such guidelines, it is expected that securitization would grow as an important instrument for financial intermediation, especially for those companies looking to increase their balance sheet liquidity and to obtain additional working capital at a lower cost.

In August, the SEC arranged a seminar titled “Overview of Capital Market Issues and Future Trends”. The seminar, which was attended by a distinguished gathering of capital market experts, members of academia and representatives of the donor community from Karachi, Lahore and Islamabad, was chaired by Mr. Khalid A. Mirza, Chairman, SEC. Dr. Asim Ijaz Khawaja, Assistant Professor, Harvard University, USA was the keynote speaker at the seminar, while Mr. Ali Ansari, CEO, AKD Securities and Mr. Sameer Ahmed, Managing Director, Lahore Stock Exchange also gave presentations.

The seminar included interactive discussion sessions with the participants which contributed to the objectives of the seminar which was to broadly assess the impact of capital market reforms and evolve a focused strategy for future reforms. The participants and speakers were very appreciative of the measures taken by SEC and gave valuable suggestions for consideration of the SEC.

From left: Mr. Haroon Sharif, Executive Director, SEC, Dr. Asim Khawaja, Assistant Professor, Harvard University, USA, Mr. Khalid A. Mirza, Chairman, SEC, Mr. Shahid Ghaffar, Commissioner, SEC, Mr. Ali Ansari, CEO, AKD Securities and Mr. Sameer Ahmed, Managing Director, Lahore Stock Exchange at the seminar held in Islamabad on August 27, 2002.

The Lahore Chapter of the Management Association of Pakistan arranged a seminar in July titled “Role of SEC in Developing the Capital Market in Pakistan”. Mr. Khalid A. Mirza, Chairman, SEC, was the chief guest at the seminar which attracted a large gathering from the corporate sector.

Speaking as Chief Guest at the seminar, Mr. Mirza said that the progress made by the SEC to improve and revitalize the capital market as well as the corporate sector, has been phenomenal and recognized as such both within Pakistan and abroad.

The SEC, the United Nations Development Programme (UNDP) and the Economic Affairs Division (EAD) have signed a Memorandum of Understanding aimed at encouraging compliance with the principles of good corporate governance. Under this project, UNDP shall provide technical and financial assistance to the SEC in developing and implementing good corporate governance practices and further strengthening the regulatory framework for the corporate sector in Pakistan.

This one-year project, amounting to US$ 100,000 will allow the SEC to seek participation of various stakeholders and professionals in the effective enforcement of the Code of Corporate Governance and explore the possibility of extending its applicability to state-owned entities and non-listed companies. It will also allow the SEC to initiate consultations with other emerging markets so as to benefit from international best practices and lessons learned. The provisions of the Code will be harmonized with other corporate laws, and a feasibility study will be conducted to set up a national Institute of Corporate Governance. To raise investors’ awareness, a report on the impact of the implementation of the Code on the corporate sector will be prepared, as well as a series of publications that may eventually lead to development of a corporate governance index for Pakistani companies.