NBFIs may start non-banking business

KARACHI: Securities and Exchange Commission of Pakistan (SECP) will shortly allow Non-Banking Financial Institutions (NBFIs) to start 10 new types of Non-Banking Businesses (NBBs).

Sources of the banking industry said on Friday that NBBs include Currency, Currency index, Interest Rate Instrument, Interest Rate Index, Share, Share Index, Stock, Stock Index, Debenture, and Bond Index.

All these businesses were conducted by so called forex houses or brokerage houses since 1992 and continued till last year when both State Bank of Pakistan and the SECP took concerted legal actions against these houses.

Sources said Asian Development Bank (ADB) has submitted a draft of Futures Trading Act, 2005 to SECP for the regulation of these businesses.

Under the act SECP will grant licenses to Future Exchanges, clearinghouses and brokers doing these businesses.

Sources said SECP would have powers of terminating or suspending trading on futures markets, confirming trading to liquidation of futures contract positions, ordering the liquidation of all positions or part thereof or the reduction in such positions and limiting trading to a specific price range.

Furthermore SECP would have powers to modify trading days or hours, alter conditions of delivery, fix the settlement price at which positions are to be liquidated requiring margins or additional margins for any futures contract, and modify or suspend any regulation of futures exchange.

Besides, SECP has been empowered to set emergency margins levels in any futures contracts or class of futures contract, and to set market limits positions.

Sources said Licensed Clearinghouses (CHs) will be permitted to do business on the basis of properties pledged to such CHs.

Sources said SECP has been further empowered with Emergency Powers to deal with any undesirable situation.

Sources said no futures broker shall open futures trading account for a customer unless he furnishes the customer with a separate written risk disclosure statement, which shall be in such form and contain such information as prescribed by SECP. The broker would be required to receive from customer an acknowledgement signed and dated by the customer that he has received and understood the nature and contents of risk disclosure statement.

No futures broker shall do business for his customer without entering into a written agreement with him. All dealings with customers will be carried out under each separate trust accounts, sources said.

SECP is yet to formulate regulations for segregation and safekeeping of customer assets lying with brokers.

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