Mechanism evolved to provide more safeguards for investors

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ISLAMABAD: The Central Depository Company (CDC) has introduced the Pakistan’s first Professional Clearing Member (PCM) to help boost investor protection and ease of doing business.

WealthPK quoting CDC reported on Sunday that this milestone was achieved under the regulatory push of Securities and Exchange Commission of Pakistan (SECP) and in association with the Pakistan Stock Exchange (PSX) and National Clearing Company of Pakistan Limited (NCCPL), WealthPK reported.

Under the new mechanism, the SECP may register a scheduled bank, a development finance institute or a non-banking finance company, only having licence for Investment Finance Services, to perform the functions of a PCM.

The Trading Only Broker (TO), being a Trading Right Entitlement Certificate (TREC) holder of PSX, will be eligible to execute proprietary and client trades. However, for clearing, settlement and asset custody, the CDC has to appoint a PCM to provide services.

More than two dozen trading-only brokers have signed up for the services of the new PCM, and by the end of this year, the new regime will be completely implemented, and all trading-only brokers will start using the PCM services by shifting their clearing, settlement and custody functions to it.

The new PCM regime has been successfully implemented after the introduction of relevant regulatory framework by SECP and capital market infrastructure entities, leading to the launch of E-Clear Services Limited (ESL).

SECP has assigned the task of implementing this new concept in Pakistan to all the three SROs in the capital market i.e., CDC, PSX and NCCPL. PCM, which is also known internationally as General Clearing Member (GCM), is an international best practice of ‘Third Party Clearing’ service provider, WealthPK reported.

SECP introduced the new broker regime under the Securities Brokers (Licensing & Operations) Regulations, categorising securities brokers into three categories namely trading & clearing, trading & self-clearing, and trading only. One of the major requirements for implementation of the new broker regime was the introduction of an independent third party custodial, clearing and settlement service provider for the clearing and settlement of trades executed by trading only brokers.

PCM signifies the concept of a third-party independent institution, which will offer custodial and clearing/settlement services to securities brokers and their customers. The hi-tech ESL solution will not only bring automation, efficiency and transparency for the existing market players, but will also pave the way for newcomers in the capital market, both as brokerage service providers and also as investors.

This initiative will also expand the investor base of the capital market, as it will provide investors with a completely new and digital experience of capital market while giving them the confidence of asset protection by a reliable and independent third-party service provider.

A PCM has to pay Rs500,000 fee at the time of applying for licence. Fee to be paid at the time of applying for renewal of licence is Rs10,000. In case application for licence is refused by the commission, half of it shall be refunded to the applicant.
PCM can be a financial institution, such as a commercial bank, non-banking finance company etc., or a specialised entity formed for this purpose.

PCM will handle the custody and clearing/settlement functions for brokers that will significantly reduce compliance burden, ensure efficiency in businesses and allow brokers to focus on their key competencies.

The new regulations will evolve a new business model, which will support ease of doing business, and reduce operational costs.


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