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Securities, Exchange Commission of Pakistan to regulate non-bank financial institutions from Decembe

ISLAMABAD (November 19 2002) : The Securities and Exchange Commission of Pakistan (SECP) has said that the regulatory transfer of non-bank financial institutions (NBFI) will take place on December 1, 2002.

The NBFIs comprise investment banks, discount houses, housing finance companies and venture capital companies. This was decided during a co-ordination meeting between the SECP and the State Bank of Pakistan (SBP).

The transfer of these NBFIs was previously scheduled to take effect from July 1, 2002, but owing to the delay in promulgation of the enabling amendments in relevant laws, it could not take effect and had to be postponed. However, with the recently promulgated amendments in the Banking Companies Ordinance, 1962 and the Companies Ordinance, 1984, the legal hitches have been removed and the transfer can take place smoothly, the SECP said.

The regulatory transfer of NBFIs from the SBP to SECP is in accordance with the recommendations made by the joint committee for reconstruction of the NBFIs, in early 2002. It would also represent the implementation of the non-banking finance company (NBFC) concept which envisages bringing together all non-banking services, such as leasing, investment banking, housing finance, venture capital investment, asset management, discounting services and investment advisory services under one umbrella in the NBFC.

It is expected that the NBFC model would help to consolidate and strengthen these institutions so that they are in a position to face the challenges ahead.

Khalid A Mirza, Chairman, SECP, stated that the NBFC wing of the SECP is fully geared to take on the additional responsibility of regulating the NBFIs to be transferred from the SBP.

During the meeting, Chairman SECP further emphasised that the SBP should encourage banks/DFIs to provide margin financing against shares to retail investors. Introduction of margin financing by banks would help in diversifying equity ownership, reduce systemic risk and eliminate parallel banking activity carried out under the name of COT (badia) financing.

At present, stock market investors, particularly retail investors, are dependent on the COT (badla) financing in the absence of margin finance facilities from banks. Although the COT market has played a significant role in enhancing market efficiency and liquidity, it does not conform to recognised international practices.

It has, therefore, been decided that COT financing should be replaced by margin financing by banks and stockbrokers in a phased manner. Development of the futures market is also an important step towards this direction. Dr Ishrat Hussain, Governor SBP appreciated SECP's road-map for phasing out COT and assured to provide the necessary assistance in this regard.

SECP chairman also expressed satisfaction on the guidelines for banks/DFIs for participating in Asset Backed Securitisation transactions that have recently been issued by the SBP. Both regulators agreed to support and facilitate the development of securitisation products with appropriate amendments in the existing rules and regulations.

Other issues discussed during the meeting included regulation of foreign exchange (forex) brokerage companies and continuation of the State Bank's Credit Information Bureau services to and from the NBFIs subsequent to the regulatory transfer.

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