Stock Brokers Express Concern Over Recent Amendments to NCCPL Regulations

The Pakistan Stock Brokers Association has expressed its concerns regarding the approved amendments to the NCCPL Regulations, 2015.  In a letter to National Clearing Company of Pakistan Limited (NCCPL) Chairman, the association said these amendments enable the admission of commercial banks and mutual funds as trading participants for direct trading in the CDS-eligible Government of Pakistan Ijarah Sukuks (GIS).   The letter draws NCCPL’s attention to sub-section 5 of Section 26 of the Securities Act, 2015, which states that the power to make regulations conferred by this section on the clearing house shall be subject to the condition of previous publication of the said regulations on the website of clearing house along with a rational for eliciting public opinion thereon within a period of not less than seven days from the date of its publication placement on website:  The association said that it understands that the proviso to the above section states that provided that, on an application by the clearing house, the Commission may waive the condition of placement of proposed regulations on the website of the clearing house in cases requiring the immediate implementation of a proposed regulation(s). In this instance, we fail to find any valid reason for immediate implementation such as to address market-wide impacts, etc., and therefore do not see justifiable grounds for such urgency.  It emphasized that the brokerage community has long been an integral part of Pakistan’s Capital Market ecosystem, facilitating access, liquidity, and expertise in trading instruments, including but not limited to GDS and GIS trading. The association said it has been consistently supporting the Capital Market Infrastructure Institutions and taking the lead in all key initiatives for the development of the market. Excluding key stakeholders from this decision-making process raises serious concerns about the adequacy of the NCCPL’s professional and governance standards, it added.  Reportedly, in the case, R (on the application of British Blind & Shutter Association) v Secretary of State for Housing, Communities & Local Government [2019] EWHC 3162 (Admin) the High Court quashed a regulation inserted into the Building Regulations 2010 by the Building (Amendment Regulations) 2018 (“the 2018 Regulations”). The court found that the Secretary of State’s consultation in respect of this regulation was so unfair as to be unlawful as the consultation failed to let those who had a potential interest in the subject matter of the consultation know in clear terms what the proposal was, the letter noted.  Ther letter highlights that the judgment also discusses that where public bodies have a statutory duty to consult, they should consider whether that gives rise to positive duties to take steps to identify those to whom the proposals in a consultation may be relevant and to ensure that proposals are communicated to them in sufficient detail. This may require public bodies to take proactive steps to identify which groups may be affected by a consultation, and ensure that the consultation is announced in media relevant to these bodies or communicated to them directly. Fair communication of a consultation involves more than sending the title or a general summary of a consultation to parties who may be affected by its proposals. Public bodies must ensure that they provide sufficiently detailed information on the content of a consultation to ensure recipients of their communications are aware that it contains proposals which could be relevant to them.  The letter noted that at NCCPL, implementing the International Best Standards is often discussed, hence, it is important to note that according to the International Guidelines on Public Consultation the latter is integral to policy development and efficient regulatory design. It involves seeking the input of a wide range of stakeholders who can make a valuable contribution to assessing the costs and benefits of proposed regulation & alternatives, regulatory implementation, and post- implementation evaluation. It also emphasizes that Consultation should occur across the policy cycle, for new, amending, and periodic review of regulations at the; (i) Policy Development Stage; (ii) Regulatory Impact Assessment Stage; and (iii) Post-Implementation Evaluation Stage.  As far as the market participants are concerned, the NCCPL might have limited & incomplete knowledge, and therefore, the need for a wide range of stakeholders arises for advice on policy problems, providing feedback on the effectiveness of regulation, and addressing the costs & impacts that end users face. The letter further notes that regulations favoring a particular class have been implemented quickly, while those impacting brokers and the broader investor community, including but not limited to amendments to CGT computation slabs & penalty clauses, enhancement of DFC limits, holistic review of margin requirements, streamlining the process of investor onboarding/KYC compliance, and effective implementation of Centralized KYC Organization framework, remain pending. These inconsistencies further erode confidence in the NCCPL’s commitment to inculcate exemplary Corporate Governance based on high levels of integrity, and confidentiality as captured in its Mission/Vision Statement.  “We trust that this letter underscores the gravity of our concerns and urge the Board of Directors to review this matter with the seriousness it deserves,” it said.