The Securities and Exchange Commission of Pakistan (SECP) is the regulator for corporate sector and capital markets in Pakistan. Established in 1997, the SECP aims to develop a fair, transparent and efficient capital market based on best international practices that protect investors and businesses in Pakistan.

Overview of the Securities and Exchange Commission of Pakistan

The SECP was established under the Securities and Exchange Commission of Pakistan Act, 1997. Its key responsibilities include:

  • Regulating the securities market, including stock exchanges and futures exchanges.
  • Supervising and regulating corporate entities including companies, corporate debt securities, insurance companies, non-banking finance companies, modarabas, housing finance companies, private equity and venture capital funds.
  • Regulating licensed external service providers connected with the corporate sector including chartered accountants, credit rating agencies, corporate secretaries, brokers, surveyors etc.
  • Proposing and enforcing laws to improve Pakistan’s corporate climate and protect investors.
  • Reducing systemic risk in key sectors under its ambit.
  • Conducting research and recommending reforms to foster capital market development in Pakistan.

The SECP operates through three regulatory divisions:

Securities Market Division

This division deals with regulation and supervision of stock exchanges, securities brokers, futures exchanges and commodities market intermediaries. It regulates the securities markets under the Securities Act 2015 and the Futures Market Act 2016. Its key functions include:

  • Regulating stock exchanges and futures exchanges.
  • Registering and regulating securities brokers, commodities brokers and other capital market intermediaries.
  • Approving public offering of securities and collective investment schemes.
  • Overseeing mergers, demergers, acquisitions and takeovers of companies listed on stock exchanges.
  • Improving market infrastructure and risk management systems.
  • Protecting investor assets through monitoring broker finances and timely enforcement actions.

Company Law Division

This division administers the legal framework governing the incorporation, registration, management and winding up of companies and other corporate entities. It enforces the Companies Act 2017, Limited Liability Partnership Act 2017 and other related legislation. Key functions are:

  • Incorporating companies and regulating their operations, accounts and finances.
  • Registering and supervising non-bank financial companies, insurance companies, modarabas etc.
  • Licensing and regulating business activities of chartered accountants, auditors, corporate secretaries, brokers, surveyors etc.
  • Administering compulsory certification regime for key professionals including directors and executives.
  • Taking action against illegal money pooling schemes and ponzi schemes.
  • Overseeing winding up, dissolution and mergers of corporate entities.
  • Prosecuting company frauds, scams and malpractices.

Specialized Companies Division

This division deals with regulation and development of specialized sectors under SECP’s ambit including insurance, private pensions, REITS, mutual funds, private equity and venture capital. Its main functions are:

  • Regulating the insurance industry including registration and governance of insurance companies and insurance brokers.
  • Licensing asset management companies and investment advisors for mutual funds and private pension funds.
  • Regulating Real Estate Investment Trusts (REITs) and facilitating their development.
  • Framing rules for private equity, venture capital funds, collective investment schemes and other NBFCs.
  • Administering regulatory frameworks for specialized financial sectors.
  • Taking measures to improve access to finance for small businesses and startups.

Leadership and Organizational Structure of SECP

The SECP is governed by a Commission comprising of 8 commissioners appointed by the federal government. The Chairman SECP is the chief executive of the organization.

Below is the current organizational structure of the SECP:

  • Chairman
  • Two Executive Directors
  • Five Commissioners

The Executive Directors head two operational wings involved in day-to-day regulation:

Regulatory Affairs Wing

This wing deals with regulation and supervision of corporates, NBFCs, securities brokers, insurers and other regulated entities. It has four departments:

  • Supervision Department – Oversees regulation of NBFCs, brokers, insurers etc. through on-site inspections and off-site surveillance.
  • Specialised Companies Department – Regulates REITS, mutual funds, private equity/venture capital funds etc.
  • Enforcement Department – Enforces laws and regulations through legal actions against regulated entities.
  • International Relations, Market Development and Research – Fosters collaborations and market development initiatives.

Company Law and Compliance Wing

This wing deals with administering the legal framework for companies and corporate entities in Pakistan. It comprises of:

  • Company Law Department – Oversees incorporation, registration and regulation of companies and winding up procedures.
  • Corporate Compliance Department – Administers regulation of corporate secretaries, brokers, auditors, chartered accountants etc.
  • Prosecution and Legal Services Department – Prosecutes company frauds and malpractices.
  • Corporate Supervision Department – Scrutinizes statutory filings and submissions made by companies.

Besides these two wings, the SECP also has support departments looking after HR, IT, finance, internal audit and infrastructure.

The SECP head office is located in Islamabad alongside regional offices in all provincial capitals and major cities. It has a staff strength of over 600 employees.

Powers and Functions of the Securities and Exchange Commission of Pakistan

The SECP derives its powers from the SECP Act 1997 and other legislation it administers. It has wide-ranging regulatory and enforcement powers including:

Regulatory Powers

  • Registering, licensing and regulating companies, brokers, NBFCs, insurers etc.
  • Framing rules, regulations and directives to govern regulated entities and sectors.
  • Overseeing securities offerings, mergers and acquisitions.
  • Specifying disclosure requirements and accounting/auditing standards.
  • Conducting inspections and forensic audits of regulated entities.
  • Imposing penalties and suspensions on erring companies and intermediaries.
  • Approving appointment of directors, CEOs and CFOs of regulated companies.

Enforcement Powers

  • Launching investigations and enquiries against regulated entities on complaints and suo moto basis.
  • Summoning individuals and records during investigations.
  • Impounding documents and freezing assets/accounts of regulated entities.
  • Imposing monetary penalties and suspending operations of regulated companies.
  • Filing winding up petitions against companies and entities.
  • Prosecuting company frauds and malpractices in courts.

Product Development

  • Developing capital market infrastructure including depositories, clearing houses etc.
  • Facilitating introduction of new financial products including derivatives, REITs etc.
  • Promoting institutional development through REITs, mutual funds, private equity/venture capital etc.
  • Recommending legal reforms for improving Pakistan’s corporate climate and access to finance.

Investor Awareness and Education

  • Investor education programs to increase financial literacy.
  • Maintaining investor grievance resolution mechanisms.
  • Issuing alerts and warnings about illegal investment schemes.
  • Organizing seminars, workshops and training programs for public.

The wide scope of the SECP’s powers enables it to regulate and develop Pakistan’s corporate sector and capital market in line with international best practices. At the same time, its strong compliance and enforcement armoury deters malpractices and misconduct among regulated entities.

Major Regulations and Laws Administered by SECP

The SECP administers and enforces a wide array of laws, regulations and standards aimed at investor protection, market regulation and corporate governance. Some key regulations under its ambit are:

  • Companies Act, 2017 – Governs the incorporation and registration of companies in Pakistan. It specifies organizational requirements, share capital and management structures for companies.
  • Limited Liability Partnership Act, 2017 – Allows creation of limited liability partnerships as an alternative business structure and specifies their governance framework.
  • Securities Act, 2015 – Provides regulatory framework for the securities market including public offerings and market intermediaries.
  • Futures Market Act, 2016 – Governs the licensing and regulation of futures exchanges and futures brokers.
  • REIT Regulations 2015 – Framework for registration and regulation of Real Estate Investment Trusts in Pakistan.
  • NBFC Rules 2003 – Rules for licensing and prudential regulation of non-bank financial companies.
  • Insurance Rules, 2017 – Regulations for registration and governance of insurance companies and insurance brokers.
  • Securities Brokers (Licensing and Operations) Regulations 2016 – Regulations for licensing and oversight of securities brokers.
  • Public Offering Regulations 2017 – Regulations for public offering of shares and listing of companies on stock exchanges.
  • Takeover Laws – regulates substantial acquisition of shares and mergers/acquisitions of listed companies.
  • Buy-back Laws – Framework for companies to repurchase their shares.
  • Corporate Governance Regulations – Code of Corporate Governance for listed companies and NBFCs.

By administering these robust regulations, the SECP aims to foster good governance and ethical conduct among Pakistani corporates.

Role of SECP in Developing Pakistan’s Capital Market

As the apex regulator for the corporate sector and capital market, the SECP plays a pivotal role in the development of Pakistan’s capital market and economy. It has taken many initiatives to strengthen regulation and introduce new products and channels for capital mobilization and investment:

Strengthening Market Infrastructure

  • Automating trading, clearing and settlement processes through National Clearing Company of Pakistan Ltd.
  • Establishing Centralized Know Your Customer Organization for simplified investor account opening.
  • Demutualizing and corporatizing stock exchanges to improve governance.
  • Developing and enforcing risk management regulations for securities brokers.

Widening Investor Base

  • Reducing minimum trading lot sizes to enable low ticket retail investments.
  • Simplifying account opening through online onboarding and e-IPO systems.
  • Launching nationwide investor education programs especially for women, youth and retired investors.

Facilitating Listing and IPOs

  • Introducing regulatory reforms to make IPOs easier and cost-effective for SMEs and startups.
  • Assisting companies in listing through advisory and FastTrack IPO processes.
  • Encouraging technology companies and SMEs to tap capital markets through GEM board and SME board respectively.

Introducing New Asset Classes

  • Launching Alternative Trading System for small businesses.
  • Introducing regulatory framework for derivatives trading.
  • Rolling out REITs enabling investment in real estate.
  • Facilitating launch of ETFs tracking major indices.

Promoting Institutions and Intermediaries

  • Encouraging asset management and mutual fund industry.
  • Drafting limited partners’ regime to attract venture capital and private equity investment.
  • Developing regulations for investment advisors, brokers and market intermediaries.

Through these and other initiatives, SECP has played a pivotal role in deepening Pakistan’s capital markets and diversifying avenues for investment in the country.

Key Achievements and Initiatives of the Securities and Exchange Commission of Pakistan

Since its inception in 1997, the SECP has undertaken multiple reform initiatives that have improved Pakistan’s corporate climate, capital market structure and investor protection framework:

Fostering Corporate Growth

  • Reducing time for company registration from 48 hours to just 4 hours currently.
  • Introducing one-window facility for company incorporation.
  • Allowing 100% foreign ownership for several sectors through reform of foreign direct investment policy.
  • Simplifying regulatory compliance for Small and Medium Enterprises (SMEs).

Capital Market Development

  • Demutualizing all three stock exchanges into corporatized entities with diversified ownership.
  • Developing state-of-the-art electronic trading, clearing and settlement infrastructure.
  • Reducing stock trading settlement from T+5 to T+2 for improved efficiency.
  • Launching growth boards for SMEs and technology firms to raise capital.
  • Introducing regulatory framework for REITs, derivatives and other new asset classes.

Investor Protection

  • Specifying fit and proper criteria for directors and senior management of listed companies.
  • Mandating separation of roles between chairman and CEO in listed companies for better governance.
  • Prohibiting insider trading through legal amendments.
  • Establishing Investor Education Portal offering multi-lingual resources.
  • Facilitating low-cost and swift dispute resolution through arbitration and mediation.

Regulatory Enhancement

  • Adopting risk-based supervision framework involving off-site surveillance and on-site inspection of regulated entities.
  • Establishing dedicated Deposit Protection Fund to compensate investors if a broker fails.
  • Developing in-house forensics capabilities to detect financial crimes and frauds.
  • Upgrading compliance and enforcement machinery to act against market manipulation and misconduct.
  • Expanding international collaborations with regional and global regulators for experience sharing.

The SECP continues to upgrade Pakistan’s regulatory architecture in line with global standards to facilitate business growth and protect investors.

Criticisms and Shortcomings of the Securities and Exchange Commission of Pakistan

While the SECP has made significant progress in capital market development, some criticisms have been leveled regarding its regulatory effectiveness and enforcement actions:

Weak Enforcement Record

  • Perceived slow and weak enforcement action against prominent market abuse incidents.
  • Underutilization of powers to prosecute white collar crimes and securities frauds.
  • Inability to successfully conclude prominent cases like stock market manipulation by Omni Group.

Governance Concerns

  • Political interference in appointment of commissioners and key senior officials.
  • High turnover rate among commissioners and chairmen negatively impacting continuity.
  • Lack of complete operational autonomy and financial independence.

Narrow Regulatory Focus

  • Disproportionate focus on regulating listed companies and intermediaries.
  • Inadequate supervision of small regional exchanges, privately held companies and offshore shell companies.
  • Slow oversight reforms related to external auditors, credit rating agencies and professionals.

Compliance Burdens

  • Overregulation of listed companies through excessive disclosure and approval requirements.
  • Lack of efforts to reduce regulatory compliance costs hampering private sector.
  • Delay in revamping outdated laws and regulations.

Addressing these limitations can help the SECP maximize its effectiveness and contribution to Pakistan’s economic growth.

Outlook on the Future of the Securities and Exchange Commission of Pakistan

Multiple initiatives are underway for enhancing the capacity and effectiveness of SECP to regulate Pakistan’s capital market and corporate sector:

  • Amending SECP Act to strengthen its autonomy, enforcement powers and stability of tenure for commissioners.
  • Overhauling company law, securities market and NBFC laws to reduce compliance burdens of private sector.
  • Introducing new laws allowing derivative instruments, commodities markets and other innovative investments.

Technology Integration

  • Developing integrated MIS dashboards for data-driven offsite market surveillance.
  • Upgrading IT systems to allow machine learning based risk profiling and predictive analytics.
  • Enabling online compliance filing, whistleblowing and investor complaints redressal systems.
  • Promoting financial technologies like digital trading platforms, robo-advisors, blockchain etc.

Institution Building

  • Strengthening in-house investigation expertise through forensics trainings.
  • Establishing Financial Crime Investigation Unit for effectively probing corporate frauds and financial crimes.
  • Expanding international cooperation with regional and global regulators for staff trainings and regulatory coordination.
  • Enhancing focus on regulating offshore companies, shell companies and foreign owned local entities.

Financial Inclusion

  • Promoting SME access to capital markets through reserved trading boards, simplified listings and investor literacy.
  • Facilitating capital raising options for startups including equity crowdfunding platforms and private capital channels.
  • Expanding housing finance through regulatory enhancements for housing finance companies and REITs.
  • Introducing measures to enhance retail participation in capital markets.

By building on its past success and undertaking new initiatives, SECP seeks to propel Pakistan’s corporate and financial markets to new heights of transparency, efficiency and global integration.

In summary, the Securities and Exchange Commission of Pakistan plays a pivotal role in the regulation and growth of Pakistan’s corporate sector and capital markets. Its wide-ranging powers and multi-pronged reform efforts have strengthened regulation and expanded financing avenues spurring business growth. Addressing governance and enforcement limitations can enable the SECP to have an even greater impact on Pakistan’s economic and social advancement in line with its statutory mission.