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DEMUTUALIZATION ACT, 2012

Presented By:

Uzair Zamir
(SP16-BAF-027) Dated:
4/5/2018

BAF-7

ASSIGNMENT #

STOCK EXCHANGE (CORPORATIZATION, DEMUTUALIZATION & INTEGRATION) ACT, 2012

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1. INTRODUCTION
This Act maybe called the Stock Exchange (Demutualization) Act, 2012. This Act
shall be applicable all across Pakistan; this act will be into force at once. Declared
on May 7, 2012, this Act provisions the integration of stock exchange. The
authorized documentation included the revaluation of assets and liabilities,
arrangement for differentiation of commercial and regulatory functions
additionally the (MOA’s & AOA’s).

2. OBJECTIVES:
The objectives for this of Demutualization Act are as follows:
1. To declare the Pakistani Capital market in compliance with international
laws this in turn would result in a formalized and transparent Stock
Exchange.
2. Lure in strategic investors and will embark visibility in International
Capital Market Forums.
3. To provide autonomy to the Stock Exchange to undertake by investment
banks compatible and determination of offer price for shares.
4. To develop standards and procedures for the implementation of Laws
and Regulations.
5. To identify an area for improvement in the current process and
professionalism of SECP.

3. POLICIES:
Policies that will be applicable as per Demutualization Act (2012):

 Delegation of authority to companies to accept any price offered for the

sale of shares by investor.
 Can enter into any negotiation and finalize the sale of not more than
40% of the total paid up capital.
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 Acceptance criteria of the stock exchange can be implemented in

relevance to discounted cash flow or net asset value.
 Interpretation of the Results based on the Data Collected.

4. EXPLANATION:
A detailed five-year development plans together with the capital expenditure
estimate and sources of finance along with SECP’s observations on the same in
the interest of the market, have also been approved. The approval marks the
achievement of an important milestone towards completion of the said
exercise, said SECP statement issued here Monday.It is expected that the stock
exchanges will now be able to complete the subsequent activities required in
the Act and will stand demutualized by September 3, as  stipulated in the Act.

The existing KSE members have also been granted the rights for trading in the
demutualised stock exchange. Both houses of the parliament passed the
"Stock Exchanges (Corporatization, Demutualization and Integration) Act, 2012
in a joint sitting in March 2012 while the President of Pakistan signed the Bill in
May this year. The process of Demutualization would be completed in
September 2012, when the Securities and Exchange Commission of Pakistan
(SECP) would issue a certificate after completion of all formalities in this
regard.

Karachi Stock Exchange Limited in a letter sent to all members said, "In
compliance with the requirements of section 5(1) of Stock Exchanges
(Corporatization, Demutualization and Integration) Act, 2012 we are writing to
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confirm that based on revalued assets and liabilities of Karachi Stock Exchange
(KSE), as on December 31, 2011, a total number of 4,007,383 ordinary shares
of Rs 10 each in corporatized and demutualised Karachi Stock Exchange
Limited, have been allotted to you in dematerialized format, in pursuance of
Act.

"We further confirm that out of the above mentioned shares, 2,404,430
ordinary shares, being 60 percent of the total number of shares allotted to
you, have been deposited in a sub-account opened in your name under KSE's
participant ID with Central Depository Company of Pakistan Limited (CDC),
which will remain blocked in terms of the provision of the Act," the letter
added.

The Karachi Stock Exchange Limited has also issued certificates of their shares
to all the existing members of the Exchange. The SECP, in its letter sent to
Karachi Stock Exchange said, "Whereas, at present only a member of an
exchange is entitled to act as a broker of such exchange after obtaining
registration from SECP.

However, consequent to promulgation of the Stock Exchanges

(Corporatization, Demutualization and Integration) Act, 2012, the stock
exchanges are required to allot shares and issue Trading Right Entitlement
Certificates (TRECs) to their members/initial shareholders, in lieu of the
existing memberships. Accordingly, subsequent to issuance of TRECs, the
rights and privileges relating to trading that are presently attached to the
membership of the stock exchanges shall instead be available to the TREC
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holders. Therefore, post Corporatization and Demutualization, any person who

holds a TREC will be eligible for registration as a broker."