SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN

1. SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN

2. PAKISTAN

3. SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN • Securities & Exchange Commission of Pakistan was established w.e.f. January 1, 1999 under Securities and Exchange Commission of Pakistan Act, 1997. •  Corporate Law Authority (CLA), a Department of Ministry of Finance, was the regulatory authority for capital market and corporate sector until December 31, 1998. • The Commission attained financial autonomy w.e.f. July 1, 1999.

4. SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN • The Commission comprises of Commissioners including a Chairman as may be fixed by the Federal Government. The minimum number of commissioners shall be five and maximum number of commissioners shall be seven. The Chairman is the Chief Executive Officer of the Commission. The Commission presently comprises of five Commissioners including the Chairman. • A Policy Board consisting of seven members has been established. The Chairman of the Commission is also the Chairman of the Policy Board.

5. SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN • The Commission comprises of Commissioners including a Chairman as may be fixed by the Federal Government. The minimum number of commissioners shall be five and maximum number of commissioners shall be seven. The Chairman is the Chief Executive Officer of the Commission. The Commission presently comprises of five Commissioners including the Chairman. • A Policy Board consisting of seven members has been established. The Chairman of the Commission is also the Chairman of the Policy Board.

6. SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN • Securities & Exchange Commission of Pakistan was established w.e.f. January 1, 1999 under Securities and Exchange Commission of Pakistan Act, 1997. • Corporate Law Authority (CLA), a Department of Ministry of Finance, was the regulatory authority for capital market and corporate sector until December 31, 1998. • The Commission attained financial autonomy w.e.f. July 1, 1999.

7. STOCK EXCHANGES

8. CAPITAL MARKET REFORMS • The stock market was opened for foreign portfolio investors on equal terms with local participants in May 1991. • Commercial banks, Investment banks, Leasing Companies, Modarabas and Mutual Funds were permitted to be established in the private sector. • Privatization of state-owned enterprises. • Pricing of shares was freed for primary offerings.

9. IMPACT OF REFORMS

10. Market Indicator 1949-1990 1991-2000 Increase Listed Capital (Rs. in million) 28,056.00 230,250.90 721% Market Capitalization (Rs. in million) 61,750.00 407,073.00 559% Average Daily Turnover (Shares in million) 1.10 247.00 20,572% No. of Shareholders 0.20 1.50 650% IMPACT OF REFORMS

11. IMPACT OF REFORMS Pakistani companies were able to access international capital markets. • Euro bond of Dewan Salman and Exchangeable bond of PTCL were launched. • GDR’s of PTCL, HUBCO and Chakwal Cement were issued to foreign investors. • It was possible to float projects with all equity capital structure. Ibrahim Fiber, Dhan Fiber, Lucky Cement and Chakwal Cement made placements to international investors. • The above issues together with portfolio investment mobilized around US$ 2 billion.

12. IMPACT OF REFORMS

13. RECENT REFORMS • Companies Ordinance and Securities and Exchange Ordinance were amended to allow companies to issue debt securities to public. • Controller of Capital Issues Act was repealed. • Capital issue rules were issued. • SECP Act was enacted and SECP was established. • Buy-back of shares. • Voluntary de-listing.

14. RECENT REFORMS AND EFFICIENCY ENHANCEMENT MEASURES RESTRUCTURING OF THE BOARD • In 1997 Articles of Exchanges were amended to increase the number of non-member directors to strengthen the Board of Exchanges and creating a position of non-member Managing Director. 40% of the Board seats now go to non-members including nominees of the Commission.

15. RECENT REFORMS AND EFFICIENCY ENHANCEMENT MEASURES

16. RECENT REFORMS AND EFFICIENCY ENHANCEMENT MEASURES AUTOMATION OF MARKET INFORMATION SYSTEM • The Exchanges have made arrangements to provide information on real-time basis to the investors through the Internet. Now general public can access and down load current information from the web of Exchanges. • The information regarding the trading activity are also available through telecommunication networks by Fascom, through Tele-text Technology by Wave Tech in Pakistan and 37 other countries and through Reuters across the world.

17. RECENT REFORMS AND EFFICIENCY ENHANCEMENT MEASURES • Electronic book entry transfer of securities i.e. Central Depository System has been set up to eliminate physical settlement of securities. • The CDS is managed by the Central Depository Company of Pakistan Limited, which has been sponsored by the stock exchanges and leading local and international financial institutions. • Presently 97 percent of settlement is routed through CDS. CONT…

18. CONT… • Investors Account Services have been introduced in order to facilitate individual investors to have their account directly with CDC. • With the implementation of CDS and automated trading system, trading and settlement have become transparent and efficient.

19. RECENT SETTLEMENT CRISES • During May, 2000 the volume of trade grew to very high levels along with an increase in share prices. • There were reports of over trading and possible cornering of certain shares reportedly by some major market operators. • These operators were taking positions on borrowed capital. • In the process they took advantage of the bullish market and, consequently, the prices were unnecessarily pushed. • Initially, the operators were obtaining funds from the market at low rates.

20. RECENT SETTLEMENT CRISES • When the operators were exposed as weak holders, the market started declining, particularly, in shares held by these operators and, as a consequence, the market finance rate went up (from 14% to 50%) in those shares. • On 26 May, being the settlement date, these operators failed to make the settlement. • Due to this settlement problem the KSE index went down from 2000 to 1400. • The exchanges remained closed for one day. • The KSE declared one of its brokers as a defaulter and LSE suspended six of its brokers against whom proceedings are in progress.

21. REFORMS AND EFFICIENCY ENHANCEMENT MEASURES • SECP had to intervene and, among other rescue measures, created a lifeboat. • Due to these measures, the settlements were possible and the market started recovering. • SECP appointed an Enquiry Committee consisting of private sector professionals to investigate the causes of the crisis. • Even before the report of the enquiry, the SECP took certain measures to reform the market - discussed in the later part. CONT…

22. CONT… • The report has since been received and also published in the press. • SECP is in the process of giving hearings to the accused operators before taking action against such persons.

23. REFORMS AND RISK MANAGEMENT MEASURES On the advice of the Commission the Exchanges have agreed to further strengthen the risk management system. The measures include: • Minimum Net Capital balance has been increased by ten times to Rs.2.5 million. This will be effective from January 1, 2001. • Capital Adequacy concept for brokers is being introduced. The brokers would now be allowed to take position upto 25 times of their net capital balance w.e.f. January 1, 2001. • Exposure deposit requirements are being made more stringent. • Internationally accepted T+3 settlement system will be introduced in the Exchanges shortly. • NCSS project is also under implementation. The introduction of T+3 continuous Net Settlement would help in reducing risk.

24. OTHER REFORMS • Under ADB program loan the whole regulatory framework is being improved and strengthened. • Rules of asset securitization have been introduced. • Takeover Law is being enacted. • Impediments in the development of fixed income securities are being removed. • Venture Capital Rules are being introduced.