Demutualisation of bourses
HAVING been in business for decades, stockbrokers know that when a finance minister meets the chief regulator to discuss things about the bourses, it seldom is to convey any good news. So when Finance Minister Ishaq Dar sat across the table with the the Securities and Exchange Commission of Pakistan (SECP) on August 16, the discussion centred on the completion of the demutualisation process of the stock exchanges, in addition to the report of the 2008 market crash. Reports indicated that Dar directed the SECP to complete the demutualisation process 'without any further delay' in consultations with the stakeholders if the exchanges were unable to abide by the timeline. SECP Chairman Zafar Hijazi briefed the finance minister on the progress on demutualisation.
The major issue that remains to be resolved under the Stock Exchange (Corporatisation, Demutualisation and Integration) Act 2012 is to hunt down strategic buyers for 40pc shares of the demutualised exchanges, and to float the remaining 20pc shares for subscription by public and financial institutions. The brokers have already taken their cut of 40pc.
There are indications that if the stock exchanges are unable to get buyers by tomorrow, the initiative will pass on to the apex regulator. Originally, the stock exchanges had to find a strategic buyer within 119 days. That period expired in August 2014. The chief regulator extended the date till this August to enable the exchanges to strike a favourable deal with the prospective buyer.
Under the Act, the process of demutualisation, which includes the search and sale of the exchanges to strategic buyers, is to be completed by August 25 (tomorrow). There are indications that if the exchanges are unable to get the buyers by tomorrow, the initiative will pass on to the apex regulator. This will be unfortunate for the broker fraternity, which will be more comfortable with a strategic buyer of their own choice.
A person in the knowledge of things said the stock exchanges have found a way to stave off the chief regulator.
"The Act states that up to 40pc shares are to be divested to the strategic buyer," he said, adding that a potential buyer could be sold just a 5pc stake, for instance, and that would also fulfil the condition of the Act.
This February, talks were known to have gone beyond the expression of interest with three parties: Bursa Malaysia, the Tokyo Stock Exchange and the Qatar Exchange. However, it seems that those three quietly slipped out for reasons that have never been made public.
The latest interested party is reckoned to the Borsa Istanbul, the sole exchange entity in Turkey. A short while ago, the representatives of the Turkish bourse had come calling at the stock exchanges. Few people know what actually transpired and if the talks with the delegation concluded on anything close to a firm commitment.
And then there is the lingering issue of the integration of the country's three stock exchanges. In their meeting on August 15, the SECP chairman briefed Dar on the international trend in the integration of stock exchanges and how it helps reduce fragmentation.
"The finance minister was told that through integration, the markets benefit from operational synergies, cost-cutting, economies of scale, and streamlined regulation," a SECP official said. Following that meeting, the integration of stock exchanges has emerged as a priority.
Several meetings have been held between the demutualisation committees of the three stock exchanges. An insider affirmed that the issue might be resolved at a meeting of the representatives of the Karachi, Lahore and Islamabad stock exchanges with the apex regulator, slated to be held this afternoon.