Corporate and

Securities Regulation
in Pakistan
Goher e Shabtab
Contemporary issues in
Corporate Law and Governance
LL.M(Corporate Law)
Securities Regulation
Introduction
What is Securities Regulation?
 A field that covers the interaction between the
law and the securities industry.
 This includes many different topics,
some addressed by
 some form of public law,
 some by private law and
 some by industry agreements, practices and
customs.

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Function of Securities
Regulation
 The laws of securities regulation aims at
 (1) protecting investors,
 (2) increasing market efficiency,
 (3) completing organization of the market
‘firm’,
 (4) capturing wealth for some members of the
industry and
 (5) affecting competition in the industry.

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Objective

 The objective is to provide for the

 Protection of investors

 Regulation of markets &

 Dealings in securities

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Regulations relating to
Regulation of Securities
 Securities and Exchange Ordinance, 1969
 Companies Ordinance, 1984
 Securities and Exchange Commission of
Pakistan Act, 1997
 Central Depositories Act, 1997
 Listed Companies (Substantial Acquisition of
Voting Shares and Takeovers) Ordinance,
2002
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Major Regulatory Bodies of
Financial Securities in Pakistan.

1. Securities and Exchange Commission of

Pakistan-SECP
 Basic institutional framework
 Unified regulator for all the activities on the
companies sector except banking

2. State Bank of Pakistan

 Regulator for the Banking Companies only

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 Securities and
Exchange Commission
of Pakistan Act

Establishment of SECP for the

beneficial regulation of the capital
markets, superintendence and
control of corporate entities for
connected matters
SECP- A regulatory body
 A federal agency that administers Pakistan’s
securities laws to protect the investing public
and maintain smoothly functioning markets.
 It Succeeded the Corporate law Authority
and came into existence on Jan 01, 1999.
 The SECP board is directly answerable to
the parliament.

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SECP-Divisions
 It consist of 06 divisions

 Security market
 Enforcement
 Insurance
 Support services
 Non-banking financial sector
 Company law administration

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SECP-Functions

 The Securities Market Division at SECP is

responsible for the regulation of all aspects
of the securities market including:
 licensing and coordination,

 regulation of secondary market,

 public offerings,

 market intermediaries and market

surveillance.
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State Bank of Pakistan
 Established in 1948, (SBP) is the nation’s
central bank.
 The State Bank of Pakistan regulates
commercial banks and microfinance banks.
 The responsibilities of the Bank are to ensure
the soundness of the financial system
through the
 licensing process and
 regular supervision of commercial & microfinance
banks.
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SBP-A regulatory body

 Regulatory Process

 Risk Based Approach

 Licensing
 Supervision
 Enforcement

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 Central
Depository Company
of Pakistan Limited
For the establishment and
operation of book entry system
for the transfer of securities by
CDCs
Central Depository Company
of Pakistan Limited (CDC)
 Incorporated as a public limited (Unlisted) company
in 1993, is the only depository in Pakistan.
 It started operations in September 1997.
 Sole entity handling the electronic (paperless)
settlement of transactions
 carried out at all three stock exchanges of the country.
 Through its efficient functioning, approximately 99%
of the market settlement is in book entry form.
 It is regulated by the (SECP).
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CDC-Description
 CDC is an electronic book entry system
used to record and maintain securities and
their transfer’s registration.
 The system changes the ownership of
securities
 without any physical movement or
endorsement of certificates &
 execution of transfer instruments.

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Aim of CDC

 The aim of CDC Pakistan is

 to operate as a central securities depository on
behalf of the financial services industry so as to
 contribute to the country's ability
 to support an effective capital market system
 which will attract institutional and retail level
investors from Pakistan and abroad

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Companies Ordinance
1984
Consolidate and amend the law
relating to companies and certain
other associations for the purpose
of healthy growth of corporate
enterprises, protection of investors
and creditors
Mechanism of the Company
Law
 Evidence of ownership
 Share receipt
 Register of members
 Rights determination
 Right of Voting
 Exercising ownership
 Separate Control
 Management
 Audit
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Cont…

 Through law, juristic person is formed

 That can sue and be sued
 In the name of the company
 Can ensure liability
 “companies have limited liability is a universally
accepted principle”

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Memorandum and Articles of
Association

 Memorandum
 Is the Constitution of companies
 Have the sanction of law behind it

 Articles of Association
 Contract between the share holders & promoters

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Separation of Ownership and
Control
 Share-holders are the owners of company which is
by virtue of
 Their voting rights as to voting for election/removal of
 A director &
 And an auditor
 But the control is separate from the ownership which
is exercised by management
 The directors
 Because they are bound by the articles of association and
are not in direct contract with the share-holders.

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Annual General Meeting (AGM)

 At the end of every year, the companies are

required to hold AGM in which
 Directors are appointed/removed
 Financial statements are shown
 Auditors are appointed/removed
 In listed companies, it is mandatory to hold
the AGM quarterly now

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AUDIT
 Audit
 Qualification of the Auditors
 Quality Assurance
 Credibility
 Mitigation
 Review of the Audited Accounts
 Winding Up (liquidation)

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 Securities and
Exchange Ordinance,
1969
Overview
Why S & E Ordinance?

 Comes in the national perspective of

the Securities Regulation
 Provides a national regulatory
framework with its objectives
combined with that of other
regulations to work more efficiently
Securities and Exchange
Ordinance 1969
 Objective
 Protection of investors
 Ensures fair dealings and prohibits insider trading
 Regulation of markets
 Registration and regulation of stock exchange
 Dealings in securities
 Delisting and regulation of transfer of securities
 Prohibition & liability for insider trading

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Mechanism..
 Delisting of securities
 Regulation of
 issuers,
 proxies,
 central depository companies
 Business for transfer agents, balloters etc
 Business for different sort of companies
 Power to make rules and regulations
Securities Regulation
Overview
Why These Regulations are
needed and how do they work?

 The core objectives of securities regulation are the

 Protection of the investors
 Reduction of the systematic risk
 Its not the Securities regulation alone but also the
general legal framework for the efficient regulation
and implementation of securities law.
 Securities Regulation can not be effective if not
made across the borders.
Securities Regulation-
approach
 Securities Regulation work keeping in view three
perspectives
 International perspective of Securities Regulation
regarding its
 Objectives and principles

 Legal framework and implementation

 National perspective of securities regulation with respect

to its
 Development

 Regulation

 Reforms and future trends

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International Perspective
 International organization is securities
commission (IOSCO)
 Leading international grouping of securities
market regulators
 Current membership comprises regulatory bodies
from different countries having day-to-day
 responsibilities for securities regulation
 and the administration of securities law
 International objectives and principles
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IOSCO
 IOSCO, the international organization through the
cumulative experience and knowledge after
combining objectives and principles of securities
regulation has come up with 30 principles of
securities considering
 Protection of investors
 Fair,efficient and transparent trade practices
 Reduction of systematic risk
 Which serve as the mother of all security law.
Requisite legal framework
 Effective securities regulation requires
appropriate legal framework
 Company law
 Commercial code
 Taxation laws
 Bankruptcy and insolvency
 Competition law
 Banking law
 Dispute resolution system

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National Perspective
 Market development (developmental
regulation)
 Beneficial regulation of the capital markets,
superintendence and control of corporate
entities.
 Determines the functions and powers of the
commission and the Syndicate.
 Administration & enforcement of several
corporate and securities law by SECP
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Cont..
 Regulatory Policy
 Efficient & Cost effective regulation
 consultative rule making
 Facilitating implementation
 Stringent enforcement
 Regulatory role
 Advisory function
 Ensure investor protection
 National Regulatory Framework
 Investor protection paramount
Reforms and Future Trends
 Code of Governance
 Establishment of Pakistan institute of Corporate
Governance
 Improvement in governance of stock exchanges
 Institutional development
 Setting up of CDC
 Establishment of National Clearing Company(NCCPL)
 SECP reorganization
 Improved risk management measures
 Rotation of Auditors
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Cont..

 Business facilitation
 Re-regulation of Corporate Sector
 Corporate Tax rationalization
 Co-operation with Regional Securities
Regulators
 Establishment of South Asian Securities
Regulators Forum

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 Conclusion
Impact on the market
Impact on the market

 Each of these Acts have various regulations

having their own impact
 1. Extensive Regulations
 2. Every Regulation has a cost
 3. Investors would get confused

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Present Situation
 A country like ours which comes under the
ambit of developing countries and the
economic variations it undergoes with an
unstable economy has hard task to invite the
investors and to give them security due to the
over-whelming and extensive laws and
regulations which have been adopted from the
developed countries with an advanced and
stable economy, which in turn leaves a
question mark towards the progress of our
market in the modern corporate world.
Impact on securities market

 An unresolved issue is what impact

differences in legal regimes governing the
securities industry actually have on the
behavior of securities markets?

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Corporate Control

 The market for corporate control has

attracted attention because it is a device
by which the control of important
economic institutions can be wrested
from one incumbent management and
transferred to another

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 Special Thanks

Dedicated to Dr.Tariq Hassan for all

the motivation which enabled me to
think through & submit my project
with keen interest

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