SECURITIES & EXCHANGE COMMISSION PAKISTAN

The SECP was established on January 1, 1999, in pursuance of the Securities and Exchange Commission
of Pakistan Act, 1997. The establishment of the SECP was the outcome of a loan agreement between
GoP and Asian Development Bank (ADB) whereby $US 250 million was sanctioned for the development
of the capital market in Pakistan.

The establishment of the SECP was an important milestone in the evolution of the regulatory framework
for the capital market in Pakistan.

The SECP was set up as an autonomous body “for the beneficial regulation of the capital markets
supervision and control of the corporate entities and for the matters connected therewith and
incidental thereto”

SECP Vision Statement:

The development of modern and efficient corporate sector and capital market based on sound regulatory
principles, that provides impetus for high economic growth and foster social harmony in the Country.

SECP Mission Statement:

“To promote an efficient and transparent capital market, develop the corporate sector and protect the
investor through responsive policy measures, effective regulation and enforcement of best governance
practices.”

Structure of SECP:

The SECP was set up as two tiered organization consisting of:

• Security & Exchange Policy Board

• Security & Exchange Commission

Security and Exchange Policy Board:

The Policy Board is entrusted with the responsibility to provide guidance to the Commission in all
matters relating to its functions and to formulate policies in consultation with the Commission.

In addition, it is responsible for advising the Government on matters falling within the purview of the Act
and other corporate laws and to express its opinion on policy matters referred to it by the Government
or the Commission.

The Act provides that the Policy Board should consist of a maximum of nine members appointed by the
Federal Government, including five (5) ex-officio members and four from the private sector.

The ex-officio members are:

(i) Secretary, Finance Division;

(ii) Secretary, Law, Justice and Human Rights Division;

(iii) Secretary, Commerce Division;

(iv) Chairman of the Commission; and

(v) Deputy Governor of the State Bank of Pakistan (SBP).

Security and Exchange Commission:

The commission has full financial, administrative and operational autonomy and comprised of five
commissioners including Chairman.

The commissioners are appointed by the Federal government and are responsible for the division like
securities exchange, investment company law and the most importantly, enforcement. Of the five
commissioners, three, including the chairman, are from the private sector and two would be from
government.

The work of the Commission has been distributed amongst its six (6) divisions, each of which is headed
by an Executive Director and divided into Wings for effective administration.

The Divisions are:

1. Company Law Division

2. Securities Market division

3. Specialized Companies division

4. Finance and Admin Division

5. HR & Training Division

6. Insurance Division

7. IS &T Division

The Roles of Securities and Exchange Commission of Pakistan

The Securities and Exchange Commission of Pakistan (SEC) is an autonomous statutory body that is
entrusted with the integrated administration and regulation of the capital markets, corporate sector and
financial (non-banking) sectors in Pakistan. SECP’s regulatory ambit extends to the Insurance sector,
NBFIs and to the significant components of capital markets such as Stock Exchanges, Commodity
exchange, CDC, NCCPL, beside the vast and growing corporate sector. The Policy making for each of
these areas also falls under SECP’s purview that entails not only the revision of existing laws and
regulations to bring them in line with best practices but also the promulgation of new laws etc. The field
is really vast and challenging.

The mandate entrusted upon the Commission has made SECP the catalyst to evolve the capital markets
of the country as progressive, transparent and efficient markets, employing best practices and
safeguarding the interests of the investors at large.
As the regulator of an emerging market the SECP’s regulatory philosophy is based on the principle of
developmental regulation. SECP, therefore, laid considerable emphasis on market development while
administering and enforcing various corporate and securities laws. SECP’s regulations are based on:

• Consultative rule making

• Facilitating implementation

• Stringent enforcement

Now we will take just an overview of the role, the SECP plays in the capital markets of Pakistan. We will
focus on the recent developments made by the SECP but first we will discuss the traditional role of the
Securities and Exchange Commission of Pakistan.

1. Regulating the issue of Securities

The Securities and Exchange Commission of Pakistan is the regulatory authority in Pakistan and
responsible for making the various rules regarding the Capital Markets.

2. Regulating the business in Stock Exchange and Other securities markets

The SECP not only regulate the business of Stock Exchanges but also regulate the business of other
securities markets. For example; the SECP is now specially promoting the insurance sector and
formulating the various rules to protect the policy holders.

3. Monitoring the Capital Markets

SECP also monitor the capital markets working in Pakistan. By monitoring the markets, the SECP enables
itself to

• recognize various changes and problems which may occur.

• gather the information about the reasons of the fluctuations in the markets,

• detect the flaws in the policies,

• identifying the unfair capital market practices

The Securities Market Division of the Securities & Exchange Commission of Pakistan (SECP) has detected
22 cases of violation of laws, including insider trading and imposed penalties on the stock exchange
members and other market stakeholders. During the last one year, the Securities Market Division had
detected 22 cases of insider trading, price manipulation, short- and blank-selling, wash trades, broker
misconduct and non-compliance of the listing regulations.
44 members of the Karachi Stock Exchange and six members of the Lahore Stock Exchange were issued
warning letters for possible violations. Two banks were also issued warning letters for non-compliance of
the securities laws. In addition, a stock exchange was also penalized for violation of the Securities &
Exchange Ordinance, 1969.

(Daily Times, Tuesday, 20th April, 2010)

4. Registering

• The SECP also register and regulate the working of stock brokers, sub-brokers, share transfer
agents, bankers to an issue, trustees of trust deeds, registrars to an issue, underwriters,
portfolio managers, investment advisors and such other intermediaries who may be associated
with the securities markets in any manner.

• SECP also propose regulations for the registration and regulating the working of collective
investment schemes, including unit trust schemes.

• SECP promotes and regulates self-regulatory organizations including securities industry and
related organizations such as stock exchanges and associations of mutual funds, leasing
companies and other NBFIs.

• SECP also regulate substantial acquisition of shares and the merger and take-over of the
companies.

5. Prohibiting Fraudulent and Unfair Trade Practices

• Prohibiting the fraudulent and all unfair trade practices relating to the securities markets is the
core function of the SECP.

• The SECP has formulated various rules to protect the investors and companies against the
fraudulent and unfair trade practices.

• According to the Section 29(1) of The SECP Act, 1997, “the Commission may conduct the
investigations in respect of any matter that is offence under this Act.

6. Promoting Investor’s Education and Training

For helping the capital markets of our country the SECP has

• designed numerous programs to educate the investors. The basic purpose of these programs is
to make the investors able to understand the nature of capital market.
 • The SECP is also training the intermediaries of the securities markets. This will leads to the
better understanding between the SECP policies, investors, and the Capital Market.

7. Calling for Information and Undertaking Inspection

As we discussed above that the SECP can conduct investigation in respect of any matter that is offence
under the SECP Act, 1997. The SECP can also call for the information and undertake the inspections,
conduct inquiries and audits of the Stock Exchanges and intermediaries and self-regulatory organizations
in the securities market. For example; through the inspection of the matters the SECP can solve the
problems of the capital market with having the clearer picture of the matter and as well as the market.
By conducting the audit of the Stock Exchanges the SECP enables itself to get the real position of its
capital market and comes to know that the either the Stock Exchanges are following the rules or not.

The commission suspended the registration of five members of the Karachi bourse on June 26, 2009 due
to unresolved investors' complaints. Subsequently, to ascertain the quantum of these complaints and
other related issues, the commission initiated an inquiry against these brokerage houses under Section
21 of the Securities & Exchange Ordinance, 1969

(Daily Times, 20th April, 2010)

8. Suggesting Reforms of Law

It’s an important role performed by the SECP. SECP consider and suggest the reforms of law relating to
the companies and bodies corporate, securities markets, including changes to the constitution, rules and
regulations of companies and bodies corporate, Stock Exchanges or clearing houses.

9. Encouraging the Development

We discussed in previous section that in 90s, we were working with poorly regulated, inefficient, and
nontransparent capital markets. The SECP performed its role as the greatest encourager of the
development of the not only the capital markets but also for the other related markets. The SECP did all
this by making the rules and regulations relating to the markets. SECP has formed a research wing for
identifying the areas of improvement to make those areas better. The research wing of the SECP can
conduct research in any of the matters relating to markets.

10. Regulating the Insurance Business

The SECP is ensuring and monitoring compliance by insurers, insurance surveyors and insurance
intermediaries of all laws, rules and regulations pertaining to insurance for the time being in force. SECP
is also regulating professional organizations connected with the insurance business and encouraging the
organized development of the insurance market in Pakistan.

11. Maintaining the Investor’s confidence

SECP plays an important role in maintaining the confidence of the holders of the insurance policies by
protecting the interests of the policy holders and beneficiaries of insurance policies in all matters,
including assignment of insurance policies, nominations by policy holders, insurable interest, and
surrender value of policies of life insurance, and other terms and conditions of contracts of insurance.
 12. Disclosure of Information to the Public

To protect the interests and rights of the investors, the SECP has formed various rules and regulations.
On the identification of the SECP various sections of the Companies Ordinance, 1984, has been changed.
For example, it’s necessary for the companies listed at any stock exchange in Pakistan to issue the
opinion of a qualified auditor along with the financial reports. It is also necessary to disclose all
necessary matters in the financial statements and reports to provide the best information to the public
and reducing the chances of fraud.

13. Settlement of Disputes

SECP also performs its role as the authority to resolve the potential disputes between the parties I.e.
investors and companies. SECP is not only solving these matters but also is trying to improve existing
methods and advise new opinions for the expeditious settlement of claims and disputes between the
parties.