SECP mulling increasing capital limit

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) is planning to increase the limit of minimum paid-up capital of stock brokers to improve the standards of financial markets, but the move would force many small brokers either to merge or leave their seats in the three stocks exchanges of the country.

The suggested is part of the Capital Market Development Plan currently being formulated by the corporate sector regulator to devise the future roadmap for promotion of stock markets.

“Currently the stock markets are dominated by few hands in country and it is imperative to introduce competition in the capital markets,” chairman SECP, Muhammad Ali, said.

Talking to media persons in his office, here on Tuesday, Mr Ali said that there were 250 to 300 brokers in three capital markets, but majority of them had a very small size in business, there was a need for stronger players who could challenge the hegemony of top players.

“As the paid-up capital is increased either the brokers will have to increase liquidity and upgrade themselves or merge among themselves to meet the new requirements,” he added.

He said that the number of brokers would decrease but they will all be strong and compete among each other not only brining new investments but also offering better products.

“Besides, the brokers have to expand their branches and network all over the country and attract small and mid level investors,” he said.

Media was informed that currently the brokers were required to have Rs2.5 million as paid-up capital as per the law formulated in early 1970s, however the new minimum limit has yet not been finalised by the SECP.

He said that the SECP had also started working on the revision of Companies Law, which is expected to be finalised by December 2012.

SECP has formed a 12-member Corporate Laws Revive Commission (CLRC) to revive the existing laws and study the corporate laws in England, Australia and India.

“However the law of England will be our role model because it is latest and the most comprehensive regulation in this regard,” he chairman SECP said.

The main target of new Companies Law will be to offer separate set of regulatory framework and filing requirements for the small, medium and large-sized companies.

“Currently Pakistan has large number of partnerships and sole proprietorships as taxes on these two forms of business are low and tax rate on companies are high, so people do not establish small and medium sized companies,” Mr Ali said.

The chairman said that SECP has asked the FBR to reduce tax on companies so that the corporate culture can be expanded.