ISLAMABAD (February 15 2003) : Pakistan makes a beginning in ECN (Electronic Communication Network) which serves as an alternative trading system providing for automatic execution of trading in listed securities.
Khalid Mirza, outgoing Chairman of Securities and Exchange Commission of Pakistan, on Friday told newsmen that one firm M/s PEX has been granted registration and is likely to start functioning in the next few months as it is preparing the software.
PEX Ltd is sponsored by Jahangir Siddiqui, who launched the first securities and brokerage and financial services, in the country.
ECNs Khalid Mirza said, would add to the liquidity of the market, provide secure trading as the buyer and the seller, deal in pre-verified trade in a cost effective manner.
Khalid Mirza, who was talking to newsmen, on the last day of his tenure said, the alternative trading system known as ECN has become an integral part of the securities markets, providing investors with enhanced flexibility and reduced trading costs, competing with the established securities exchanges.
To the dislike of the brokers who have a seat at the bourses at a heavy price, the ECN brings the buyer and the seller for electronic execution of trade, which is quick and pre-verified by the parties.
Mirza said, the purpose is to have demutualised trading system. On various occasions, SEC had urged the stock exchanges to consider demutualsiation which is a conditionality of ADB's Financial Market (Non-bank) Governance Programme 2002-05.
Under it the stock exchanges and SECP need to develop a comprehensive plan to encourage integration of stock exchanges and to facilitate the setting up of ECNs and ATSs for establishing a national market.
Mirza added that due to the ever-evolving innovations in the world of technology, we are currently witnessing the collapse of the walls separating global capital financial markets.
Significant opportunities for investors are being created as the major capital markets in Europe, Asia and the Americas evolve due to the rapid growth in global liquidity.
Yet, dealing in the many and varied marketplaces, each with its own method of operation and settlement, poses complex challenges to the investor.
The introduction of ECNs can help meet these challenges and turn them into real opportunities.
Benefits of ECNs: The establishment of country's first ECN by PEX Limited would provide significant advantages to a variety of subscribers through increased opportunities for trading, efficiency of execution, ie lower costs and enhanced liquidity and would, therefore, impart greater depth to our capital market.
In addition to the above, the establishment of an ECN in Pakistan would: Provide access to capital for quality companies;
Promote greater efficiency by building a less expensive market to trade on and achieve cost and risk efficiencies in terms of liquidity, spreads and settlement;
Promote self-regulation-to ensure a fair market for issuers, investors and trading members.
It may be stated that a presentation by the sponsors/promoters of PEX Limited was held before the Securities and Exchange Commission of Pakistan (SEC) on February 10, 2003 at SEC office, Islamabad.
The representatives of the three Stock Exchanges also attended the presentation.
After considering the views expressed at the presentation and being satisfied with the long experience and financial soundness of the sponsors, the Commission concluded view that it would be in the interest of trade and the public to register the ECN under section 5 of the Securities and Exchange Ordinance, 1969.
However, while issuing the certificate of registration, the Commission would take into account the fulfilment of the following conditions stated herein below or any other condition which may be imposed subsequently:-
1) The provision of an adequate regulatory model including inter alia the following:
i) Regulations for trading;
ii) Regulations for approval of securities for trading on the ECN;
iii) Regulations for dispute resolution;
iv) Qualifications for membership and admission, exclusion, suspension and expulsion of members;
v) Constitution and powers of the governing body and powers and duties of the office bearers;
vi) Representation from a class of persons or professions on the governing body of the ECN or any of its committees;
vii) The manner in which the business of the members should be transacted including restrictions on the business of the members;
viii) The maintenance of accounts and records, including those of members and their audits.
2) The installation of a satisfactory risk management framework at the ECN.
3) Approval for the composition of shareholding of the ECN by the Securities Market Division of the Commission.
4) The presence of adequate technology including an adequate trading platform at the ECN.
5) That the Regulations governing the ECN contain appropriate provisions ensuring independent management and that these will inter alia provide specifically that the Managing Director/Chief Executive Officer of the ECN shall not be appointed, removed or terminated without the prior written approval of the Commission.
6) That the ECN shall be bound to follow any directions issued by the Commission to make amendments in its Regulations, the Memorandum and Articles of Association. Besides, no change in the Regulations of the ECN will be effected without the prior written approval of the Commission.
7) That institution with requisite experience will be encouraged while granting the license for trading rights.
8) That details about the human resource structure and organisation of the ECN shall be submitted.
Siddiqui also played a pivotal role in the setting up of the Central Depository Company of Pakistan and the first open-ended mutual fund in Pakistan's private sector.