This ongoing revolution actually started almost two decades back when the first step was taken to establish the Central Depository Company (CDC) of Pakistan. A study was conducted in 1993 to develop a conceptual framework that resulted in the formation of the CDC that started operations in September 1997. While the CDC celebrates the successful completion of 15 years of its operations on September 3, 2012, these celebrations coincide with a major milestone for the Pakistan capital market. Pakistan's all three stock exchanges will be demutualized from September 3, as stipulated in the Stock Exchanges (Corporatisation, Demutualization and Integration) Act, 2012. The Stock Exchange Demutualization Bill was unanimously passed by the Joint Sitting of the Parliament on March 27, 2012, and was enacted into law by the President of Pakistan on May 7, 2012.
This landmark achievement that will completely transform the role and identity of the Karachi, Lahore and Islamabad stock exchanges have been possible due to untiring efforts put in by the Securities and Exchange Commission of Pakistan (SECP) in consensus with all stakeholders. The law is one of the many ongoing efforts by the SECP that are meant towards creating structural and regulatory changes through reforms in the capital market.
The demutualization will provide greater balance between interests of various stakehold ers by clear segregation of trading rights and ownership rights. This separation of commercial and regulatory functions will lead to increased transparency and enhanced governance at the stock exchanges.
The corporatisation and demutualization of stock exchanges would also mean the stock exchanges' structure converting from non-profit and mutually owned organisations to for-profit entities owned by shareholders. In order to compete with other stock exchanges, efficient decision making structures and availability of funds for investment in technological infrastructure are vital. The demutualization will ensure that decisions are taken in a transparent manner considering the interest of exchanges and all other stakeholders. The demutualization is a well-established global trend and a great number of stock exchanges world-wide operate in demutualized set-up. The new law will help Pakistani bourses expand market outreach, attract new investors and improve liquidity. It would further increase visibility of these exchanges on international capital market forums.
The demutualization will also facilitate consolidation of brokers leading to financially strong entities. A demutualized stock exchange will be in a better position to attract international strategic partners and good quality issuers. For an organisation like the CDC that has been instrumental in improving the investment culture and investor confidence in Pakistan, the best part of the demutualization news is that increased transparency and enhanced governance will help expand the investor base of the capital market attracting investors in the smaller cities and far flung areas of the country. For over a decade, this has remained on the CDC's list of utmost objectives for market development.
Since its inception, the CDC not only established itself on the best principles, but also diversified its business, keeping in mind the need of efficient capital market services in a number of areas. Apart from the core depository services, CDC is now also known for its Trustee and Custodial Services, Investor Account Services, Share Registrar Services and IT Consultancy and Implementation Services (ITMINDS - a subsidiary of the CDC). It is also one of the very few organisations in Pakistan that has a fully functional portfolio of customer convenience and information services by the name of the CDC access.
The demutualization of Pakistani bourses has been very warmly welcomed by the CDC as the company is demutualized since its inception and the CDC Board has representation of not only its shareholding companies, but also of the SECP nominee directors. This balanced amalgamation on the board has ensured that the CDC's strategic decision making remains in the best interest of both its business and stakeholders. The last 15 years of the CDC's existence are a testament that such balance creates a success story. The Karachi, Lahore and Islamabad stock exchanges are about to experience the same balance and success.
The writer has been the CEO of Central Depository Company (CDC) since 2002. He is a Fellow Member of the Institute of Chartered Accountants of Pakistan (ICAP) and the Institute of Corporate Secretaries of Pakistan (ICSP).