ISLAMABAD : With the introduction of Futures Market Act 2015 in the Senate on Wednesday, a major step has been achieved towards modernising the commodity and stock exchanges in Pakistan.
The draft was forwarded to the Senate Standing Committee on Finance for deliberations.
The Act will eventually abolish the Securities and Exchange Ordinance, 1969. Current futures trade in both the Pakistan Mercantile Exchange (PMEX) and the stock exchanges is being governed under the 1969 law.
“It is a serious issue that majority of the amendments and changes introduced over futures trade have been enacted through the Finance Bill,” said an official of the Ministry of Finance.
“The ready market is currently being governed under the Securities Act 2015, but the futures trade in both the commodities and the shares market is under the 1969 law.”
After getting through the Senate, the draft will be forwarded to the National Assembly. After it is approved by both the houses, Pakistan will have a new law for futures trade.
However, after the future market law is passed, all brokers who intend to trade in futures market will need to get a new licence.
There are around 150 active brokers of PMEX while there will be a total of 380 brokers in the mutualised Pakistan Stock Exchange (PSX) that is scheduled to be inaugurated on January 11, 2016.
The PSX will replace the three different stock exchanges of the country.
There are currently 60 brokers who have licences of the Karachi Stock Exchange and the PMEX. However officials feel the scenario would change after the new regime of futures trade is introduced.
“There might be many brokers who would decide to work in futures market only and get away from the ready market because futures trade requires a higher financial capacity to withstand markets jerks,” said a broker at the Islamabad Stock Exchange. “There will be many changes in the business pattern after the PSX becomes operational,” he opined.
However, after the new futures law, the stock brokers will be allowed to trade in futures trade of shares only but the PMEX brokers will be allowed to trade in commodities and financial products such as interest rates and foreign exchange.
The major changes in the new law are strict monitoring mechanism and higher penalties for violators.
Currently, the maximum penalty for a violation in futures trade is Rs50 million and that too has been approved through the Finance Bill.
“There are always chances of the accused approaching the court against the decision of regulator due to the fact that this penalty has not been approved by the parliament,” said an official of the Securities And Exchange Commission of Pakistan (SECP) .
Under the new draft law, those found guilty of false trade, bucketing that is to sell any futures contract without having possession of the contracts, price manipulation and other fraud means of trade are liable to be fined up to Rs200m or imprisonment of up to three years. The same penalty for a company is Rs300m.
The law is strict over the procedures of appeals against the decision of the SECP.