PSX to springboard Pakistan in global stock market with competitive standards

The decision to merge the stock exchanges will, in the long run, prove beneficial for the growth and development of the country’s stock market.

Pakistan has three stock exchanges at present, Karachi Stock Exchange (KSE), Islamabad Stock Exchange (ISE) and Lahore Stock Exchange (LSE).The Idea is to merge these stock exchanges in one unit to create Pakistan Stock Exchange (PSX). The decision is designed to help strategically focus Pakistan’s developing capital market including expanding the investor base. This will also enhance governance and transparency of the capital market. The coordination would also be a buffer against regional market fluctuations.

The federal government enacted a special purpose legislation known as Stock Exchanges (Corporatization, Demutualization and Integration) Act, 2012 (“the Act”). This Act has been put into effect from May 7, 2012. According to the framework provided in the Act, the exchanges were required to get demutualized after compliance with certain prerequisites. Corporatization was an integral tool for the demutualization. Through the mode of corporatization, the Exchange being a “not for profit” entity and limited by guarantee company with no share capital has been converted into a public limited company having a share capital which has been devised through the course of revaluation of assets and liabilities on the cut-off date of March 31, 2012. The whole process of the demutualization has been supervised by the Demutualization Committee and the Board of Directors of the Exchange.

The step was taken to ensure development of capital market, which had been affected by global financial turmoil. Extensive meetings were held between officials of KSE, ISE and LSE it was decided to merge operations of all three exchanges and rename KSE as Pakistan Stock Exchange Limited (PSX).

This is the first crucial step in transformation of Pakistan’s capital market. The demutualization of stock exchanges and integration will assist in bringing the market on par with global markets, increasing attractiveness of PSX for strategic investors in future.

This will also create a larger space for Islamabad Stock Exchange and Lahore Stock Exchange (LSE) brokers. As per the scheme of demutualization, shares of total paid-up capital have been issued amongst members of the respective Exchanges whereby every member received equal equity shares along with a certificate of Trading Right Entitlement.

Integration of the three stock exchanges will soon be finalised and the newly minted stock exchange will be inaugurated by the finance minister of Pakistan at the start of next year.

It is a good omen that the government of Pakistan supports such a strategic move that unifies our capital market and creates a strong institution that helps Pakistan’s economy become competitive internationally as an attractive investment destination. The Security and Exchange Commission Of Pakistan (SECP) has expressed firm commitment to introducing reforms to establish a fair, transparent and efficient market that engenders investor confidence and conforms to international levels of performance in today’s highly competitive global environment.

ABID ALI HABIB

The author is a Director of the Karachi Stock Exchange.