President signs Stock Exchanges (Corporatization, Demutualization & Integration) Act

ISLAMABAD: President Asif Ali Zardari Monday gave assent to Stock Exchanges (Corporatization, Demutualization & Integration) Act, 2012, which will further strengthen the country's stock markets.

It was approved in joint session of parliament on March 27, 2012 and enacted into law by President signing it today (Monday) in ceremony at Aiwan-e-Sadr.

Finance Minister Dr Abdul Hafeez Sheikh, Chairperson National Assembly standing
committee on finance Fauzia Wahab, Chairman Securities & Exchange Commission of Pakistan Muhammad Ali, Commissioner SECP Imtiaz Haider, Chairman Karachi Stock Exchange Muneer Kamal, Chairman Islamabad Stock Exchange Rahid Zahir and senior officials attended the ceremony.

The law requires stock exchanges to be demutualized within 119 days of its promulgation in accordance with timelines specified for completion of various milestones involved in demutualization exercise. At present Pakistan stock exchanges are operating as non-profit companies with mutualized structure
wherein members have ownership as well as trading rights.

This structure inherently creates conflict of interest as members predominantly control affairs of stock exchange, which results in lack of transparency in their operations and compromises investors' interest. Due to lack of resources stock exchanges have not been able to grow to expectations of investors as trading activity is mostly concentrated in three buildings of these exchanges with dominant share going to KSE.

Corporatization, demutualization of stock exchanges would entail converting their structure from non-profit, mutually owned organization to for-profit entities owned by shareholders. Demutualization would result in increased transparency at stock exchanges and greater balance between interests of various stakeholders by clear segregation of commercial, regulatory functions and separation of trading rights and ownership rights. Demutualization is well-established global trend and almost all stock exchanges worldwide operate in demutualized set up.

The enactment of this law will bring Pakistan capital market on par with other international jurisdictions like India, Malaysia, Singapore, USA, UK, Germany, Australia, Hong Kong, Turkey among others. It will help expand market outreach, attract new investors, improve liquidity and enable stock exchange to attract international strategic partners. It will also facilitate consolidation of brokers
leading to financially strong entities.

The development of this law depicts government's commitment to promoting development of Pakistan capital market and its trust reposed in stock market for continued growth of economy. It provides framework for corporatization, demutualization, integration of stock exchanges and drafted after consensus with all stakeholders.

Apart from demutualization of stock exchanges, to make capital market vibrant, government is revamping Capital Gain Tax regime whereby calculation and deduction is being centralized and automated. Revamped regime would not only address issues faced by capital market but also help in documenting economy resulting in broadening tax base and ensuring 100% coverage of all taxable transactions in securities market while attracting foreign portfolio investment. (PPI)