SECP introduces 'Trading only Brokers' concept

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has issued a concept paper to introduce the categorization of brokers for addressing the issue of custody of client assets.

This concept is in line with international best practices and tailored to local market requirements, a press release said.

The SECP said the commission has been undertaking a reform agenda to revitalize the capital market and promote the expansion of investor base.

It is felt that small and medium-sized brokerage houses, alongside large ones, have a critical role to play in this regard.

In the proposed regime, in order to provide maximum facilitation to small-sized brokers, which would be categorized as Trading Only brokers and shall not retain custody of client assets, the minimum capital requirements for a brokerage license are being reduced to Rs.15 million.

Further, such brokers shall have the flexibility to have a satisfactory QCR rating auditor. These brokerage houses would be allowed to carry out transactions in all markets, including derivatives and leveraged products, with no restriction on number of branches, said a press release issued by SECP.

Moreover, they would be allowed to provide securities and futures advisory services by charging a fee and sell/ distribute financial products and also act as consultants to the Issue.

Several compliance requirements relating to client asset segregation, clearing membership, depository participant, etc shall not be applicable on Trading Only brokers and they would also not be subject to multiple audits/inspections during the year.

For promoting ease of doing business for small-sized brokerage houses, the SECP had earlier removed the requirement to provide separate Net Capital Balance certificates which are now required to be made part of audited accounts of brokers.

The requirement for auditors to provide limited assurance report of brokers has also been abolished. Furthermore, two additional categories, i.e. Trading and Clearing broker and Trading and Self Clearing broker have been proposed which shall be subject to enhanced net worth, corporate governance, compliance and rating requirements as they would be retaining custody of client assets.

These steps are aimed at strengthening the brokerage industry, enhancing the commercial viability of brokers, improving regulatory compliance and ensuring robust growth of the capital market.

The concept paper is available on the official website of SECP.