With the consistent gigantic efforts of the SECP, the President of Pakistan inked the Stock Exchanges (Corporatisation, Demutualization and Integration) Act, 2012, on May 7, 2012, to further strengthen the capital market of Pakistan. Definitely, the demutualization will lead to better corporate governance, access to economic and human capital, enhancement in listings and international alliances.
The demutualization is the process of corporatisation of a stock exchange, where an exchange formerly a company limited by guarantee converts into a public limited company, which issues shares to the general public in order to raise capital. The concept was initially used to refer explicitly to the conversion process adopted by insurance companies; it is used to describe the process through which any member-owned organisation becomes shareholders owned. Over a period of time and because of the positive aspects of this process, demutualization is now common in savings and loan industry, stock exchanges and agricultural co-operatives around the world. It is not a new term for stock markets, as in 1993 world's first exchange, Stockholm Stock Exchange went through the process of demutualization successfully. Afterwards, many stock exchanges, which were limited by guarantee were converted into public limited companies, from mutualized to demutualized exchanges.
Now this is a historic day for capital market of Pakistan where three bourses have completed the demutualization process and turned into the demutualized exchanges. This will certainly be one of the greatest milestones achieved so far by the SECP and stock exchanges. On this auspicious occasion, the NCCPL Board and Management extend their heartiest congratulations to both the SECP and stock exchanges.
The capital market of Pakistan comprises of three stock exchanges along with the state-of-the-art National Clearing Company of Pakistan Limited (NCCPL) and the Central Depository Company (CDC). Both the NCCPL and the CDC are already demutualized companies and performing their roles with full zeal and zest in the development of the capital market of Pakistan.
Taking advantage of this historic occasion, we would like to brief the readers on the role and function of the NCCPL being the leading post-trade services provider in Pakistan. The NCCPL was incorporated on July 3, 2001, to manage and operate the National Clearing and Settlement System (NCSS) in a fully automated electronic settlement system. The very objective was to develop and establish the NCSS is to provide centralised clearing and settlement services to the Pakistani capital market. Along with the clearing and settlement function, the NCCPL also provides a wide range of diversified services/products which are conducive to the development of the capital market, such as registration of Unique Identification Number (UIN), Institutional Delivery System (IDS) along with its RMS, Trade-for-Trade Settlement and RMS for debt market, Dissemination of Foreign and Local Portfolio Investments, InterBank Fund Transfer Facility, Direct Clearing and Settlement by Custodian Banks, UIN Information System (UIS), Margin Trading System, Margin Financing System, Securities Lending and Borrowing, Reporting Platform for Unlisted Debt Securities etc.
Moreover, for the first time in the history of taxation system of Pakistan, the NCCPL being an independent organisation, has been assigned the responsibility to compute, determine, collect and deposit the CGT to national exchequer on behalf of the capital market investors. This will provide ease of calculation and centralised one-window solution for the determination of the CGT.
With the demutualization of the stock exchanges, the role of the NCCPL will further enhance, whereby entire risk management function will also be transferred to the NCCPL with the objective of enabling the NCCPL to act as a Central Counter Party (CCP) with an adequate Settlement Guarantee Fund.
The writer has been the CEO of the National Clearing Company of Pakistan Limited since 2004 He is a Fellow member of the Institute of Chartered Accountants of Pakistan and the Institute of Cost and Management Accountants of Pakistan. He has been associated with the capital market for the last 15 years.