Governor SBP announces important measures for deepening the debt and capital markets at the Gong Ceremony held by PSX:
Karachi: Pakistan Stock Exchange (PSX) hosted Governor State Bank of Pakistan (SBP), Dr Reza Baqir at its Gong Ceremony to mark the beginning of a new chapter of cooperation between SBP and PSX on multiple initiatives. SBP and PSX have recently been working closely to improve and widen the access of capital market participants to government debt securities; facilitate investments by non-residents in the stock exchange; remove bottlenecks hindering companies from leveraging against shares of their group companies and developing information sharing arrangements between banks and capital markets.
Speaking on the occasion, Governor SBP, Dr. Reza Baqir said he was pleased to visit PSX for this Gong Ceremony as it marked the commitment of SBP and PSX to work together for the deepening of debt and capital markets in Pakistan and improving financial intermediation. He made three important announcements in this regard.
First, he said that SBP has revised the Rules governing appointment of primary dealers for the Government’s debt securities. This will expand the list of institutions eligible to work as primary dealers, including Security Depositories and Clearing institutions. This measure is aimed at widening the investor base of government securities, improving liquidity, enhancing transparency and promoting market development. In addition, SBP has relaxed the selection and performance criteria for development finance institutions (DFIs), investment banks and brokerage houses to encourage them to become part of the primary dealer system, which is currently dominated by banks. Hence, among other privileges offered to primary dealers, a larger and more diverse group of institutions will now have direct access to primary auctions.
He said that while the government debt market in Pakistan is well developed and liquid, participation of capital market clients has historically been limited and SBP wants to encourage wider ownership of Government securities among retail investors. The Governor SBP noted that the revised primary dealer Rules will cater to the needs of a diverse group of investors, including capital market clients, corporates and individuals, and will attract a new clientele to the government securities market. Governor Baqir shared that this measure has been taken after detailed discussions with stakeholders and a comprehensive review of international best practices.
Second, Governor Baqir said that SBP has made changes in its prudential regulations to facilitate the sponsors, shareholders and companies in raising more financing against the security of shares of their group companies. He highlighted that this amendment will help sponsors and companies in raising liquidity for further investment in new business opportunities and ventures, in turn leading to greater economic activity. This regulatory change would also benefit the capital markets by encouraging sponsors of companies to consider listing on the stock exchanges. As a result, it will also promote documentation of the economy, transparency, and good corporate governance practices.
Third, Dr. Baqir, apprised the audience that SBP and PSX are jointly working on expanding the scope of KYC information sharing arrangements between banks and Central Depository Company of Pakistan (CDC) or National Clearing Company of Pakistan Limited (NCCPL) for existing bank account holders. He was delighted to reveal that tangible progress has been made and was hopeful that this important initiative will be successfully rolled out by the end of the next month. He further added that such arrangements will facilitate capital market players in mobilizing domestic resources and channeling them effectively to productive uses.
The Governor SBP was warmly welcomed by the Chairman of the Board, PSX, Mr. Sulaiman S. Mehdi; Board Members of PSX; MD & CEO of PSX, Mr. Farrukh Khan; and senior management of PSX. Also present at the Gong Ceremony were senior members of the Market, Bank Presidents and Treasury Heads, along with senior management of SBP.
The SECP Chairman had been kind to have sent across his warm regards at the occasion. He highlighted, “As progressive regulators, SECP and the SBP, share common interest in the betterment and advancement of the capital markets and the economy as a whole. Our collaborative partnership, and forward-looking approach, have led to the introduction of numerous ground-breaking innovations, and reforms in local regulatory environment, which is the key towards economic development and growth. This includes but is not limited to the launch of Secured Transactions Registry, digital portal for expeditious bank account opening and KYC sharing for account holders”.
Welcoming the SBP Governor to PSX, the MD PSX, Mr Farrukh Khan, said “I would like to thank the Governor for his vision and leadership in forging such close collaboration between two key pillars of Pakistan’s economy- the banking sector and capital markets. They have operated in silos for too long, which has been to their own and Pakistan’s economic detriment. The SBP Governor’s visit to PSX today with the three Deputy Governors and other senior team members is testament to their interest and commitment to the growth of capital markets in Pakistan.
Pakistan’s stock market is one of the best performing markets in Asia today. This is in large part due to the proactive and aggressive monetary, fiscal, social and other measures taken by SBP and the Government. Pakistan’s capital market needs to be and can be much larger and deeper than it is today. It can play a significant role in tackling many of the structural imbalances that have bedeviled Pakistan’s economy over the years, lack of documentation, low savings rates and low investment rates – these can only be fully addressed by developing the capital markets. A large and well-functioning stock market is a prerequisite for a modern economy.
We are working on a number of important initiatives with SBP, including sharing of KYC for domestic bank account holders, along the lines of RDA. Another important area is the trading of government debt securities in the stock market. This will allow a much wider group of investors to participate in the government debt market and provide even greater price transparency. PSX’s new trading system will allow all investors to buy and sell government debt securities from the comfort of their home or office”.
He further added, “We propose to work with banks and asset management companies to creating fixed income and equity ETFs that are targeted to and meet the requirements of overseas Pakistanis. This will make it much easier for them to invest in Pakistan through their RD accounts. I think this will be an important new product in the future evolution and growth of RD accounts”.