Karachi: President Asif Ali Zardari on Monday gave assent to the Stock Exchanges (Corporatization, Demutualization and Integration) Act, 2012 to improve the efficiency of the stock markets.
According to Alfalah Securities Limited, the Demutualization Bill was earlier approved in a joint session of the Parliament on March 27, and has been enacted into law by the President. The law required the stock exchanges to be demutualised within 119 days of its promulgation in accordance with timelines specified for completion. The corporatization and demutualization of stock exchanges would involve converting the structure of the stock exchanges from non-profit, mutually owned organization to for-profit entities owned by shareholders.
After the signing of the Stock Exchanges (Corporatization, Demutualization and Integration) Act, 2012 by President, the members of the stock exchange within a period of 30 days shall ratify creation and constitution of the demutualization committee to approve valuation of stock exchanges, negotiate with strategic investors and determine offer price of sale to general public. Within 45 days of promulgation of the Bill, every Stock Exchange will be required to submit its valuations, revaluation, proposed authorized and paid-up capital, names of proposed members and directors, proposed plan for segregation of commercial and regulatory functions, draft memorandum and articles of association (M and AoA) and 5 years development plan. Within 30 days of receipt of the said information, the Commission would approve it, except the valuation report and also nominate 6 directors for each Stock Exchange. Then, within 30 days of receipt of the approvals, the Stock Exchange would adopt M and AoA, allot shares to initial members, and deposit 60% of shares in block account, issue certificates and Trading Rights Entitlements (TREs) to shareholders. Within 7 days of the adoption, a Stock Exchange would submit copy of resolution, certificate from auditors and CDC for allotment and deposit of shares to initial shareholders and after this within 7 days of receipt of aforementioned information, the Registrar will issue a certificate of re-registration, first directors will replace the previous directors from such date and the Stock Exchange will be demutualized.
Demutualization would separate the trading rights from ownership rights where members would be able to retain their trading rights and be free to sell shares of demutualised exchange. Demutualization would unlock the value of membership card for all members without loss of trading rights. Trading rights would be non-transferable and would be granted by the Exchange. A demutualised exchange would be able to enter into alliances with other stock exchanges through equity swaps and would provide an opportunity for investments and cross-listings from other countries. The new law would help expand market outreach, attract new investors, improve liquidity and enable the stock exchange to attract international strategic partners.