Regulation of

Securities
Goher e Shabtab
Contemporary issues in
Corporate Law and Governance
LL.M(Corporate Law)
Securities Regulation
Introduction
 A field that covers the interaction between the
law and the securities industry.
 This includes many different topics,
some addressed by
 some form of public law,
 some by private law and
 some by industry agreements, practices and
customs.

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Impact on securities market
 An unresolved issue is what impact
differences in legal regimes governing the
securities industry actually have on the
behavior of securities markets.

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Function of Securities
Regulation
 The laws of securities regulation have been
viewed as
 (1) protecting investors,
 (2) increasing market efficiency,
 (3) completing organization of the market
‘firm’,
 (4) capturing wealth for some members of the
industry and
 (5) affecting competition in the industry.
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Regulations relating to
Regulation of Securities
 Securities and Exchange Ordinance, 1969
 Securities and Exchange Commission of
Pakistan Act, 1997
 Central Depositories Act, 1997
 Companies Ordinance, 1984
 Insurance Ordinance, 2000
 Listed Companies (Substantial Acquisition of
Voting Shares and Take-overs) Ordinance,
2002
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Major Regulatory Bodies of
Financial Securities in Pakistan.

1. Securities and Exchange Commission of

Pakistan-SECP
 Basic institutional framework
 Unified regulator for all the activities on the
companies sector except banking

2. State Bank of Pakistan

 Regulator for the Banking Companies only

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SECP- A regulatory body

 A federal agency that administers Pakistan’s

securities laws to protect the investing public
and maintain smoothly functioning markets.
 It Succeeded the Corporate law Authority and
came into existence on Jan 01, 1999.
 The SECP board is directly answerable to the
parliament.

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 Objective

 The objective is to provide for the

 protection of investors,

 regulation of markets &

 dealings in securities.

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SECP-Divisions
 It consist of 06 divisions

 Security market
 Non-banking financial sector
 Company law administration
 Enforcement
 Insurance
 Support services

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SECP-Functions

 The Securities Market Division at SECP is

responsible for the regulation of all aspects of
the securities market including:

 licensing and coordination,

 regulation of secondary market,
 public offerings,
 market intermediaries and market
surveillance.
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State Bank of Pakistan
 Established in 1948, (SBP) is the nation’s
central bank.
 The State Bank of Pakistan regulates
commercial banks and microfinance banks.
 The responsibilities of the Bank are to ensure
the soundness of the financial system
through the
 licensing process and
 regular supervision of commercial & microfinance
banks.
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SBP-A regulatory body

 Regulatory Process

 Risk Based Approach

 Licensing
 Supervision
 Enforcement

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Licensing
 Fit and Proper
 Competence, integrity, financially sound
 Directors, MLROs, Compliance Officers,
 Owners and controllers
 Defining controlling shareholder, monitoring
shareholdings, removing unfit controllers
 Seeking information
 Imposing conditions

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CDC-Central Depository
Company
 CDS is an electronic book entry system used to
record and maintain securities and their transfer’s
registration.
 The system changes the ownership of securities
 without any physical movement or
endorsement of certificates and
 execution of transfer instruments.

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Central Depository Company
of Pakistan Limited (CDC)
 Incorporated as a public limited (Unlisted) company
in 1993, is the only depository in Pakistan.
 It started operations in September 1997.
 Sole entity handling the electronic (paperless)
settlement of transactions
 carried out at all three stock exchanges of the country.
 Through its efficient functioning, approximately 99%
of the market settlement is in book entry form.
 It is regulated by the (SECP).
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Aim of CDC

 The aim of CDC Pakistan is

 to operate as a central securities depository on
behalf of the financial services industry so as to
 contribute to the country's ability
 to support an effective capital market system
 which will attract institutional and retail level
investors from Pakistan and abroad

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Mechanism of the Company
Law
 Evidence of your ownership
 Share receipt
 Register of members

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Impact on the market
 Each of these Acts have various regulations having their own
impact
 1. Cost
 2. Extensive Regulations
 3. Investors would get confused
 Every regulation from the perspective of economy leaves an impact.
There is a cost to every regulation.
 We have heavily extensive law which we have implanted in our legal
system addresses the developed countries and the countries which are
under developed like ours do not need such extensive regulation on a
single subject because the circumstances as well as the economic
conditions vary. Such extensive law bears on economy.
 In this instance, the investor would get confused about should he be
protected.
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 Through law, juristic person is formed
 That can sue and be sued
 In the name of the company
 Can ensure liability
 “companies have limited liability is a
universally accepted principle”

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Memorandum and Articles of
Association
 Memorandum
 Is the Constitution of companies
 Have the sanction of law behind it

 Articles of Association
 Contract between the share holders & promoters

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Annual General Meeting (AGM)
 In listed companies, it is mandatory to hold
the AGM quarterly now

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AUDIT
 Qualification of the Auditors
 Quality Assurance
 Credibility
 Mitigation

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Review of the Audited
Accounts

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Winding Up

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 Each of these Acts have various regulations having their own impact
 1. Cost
 2. Extensive Regulations
 3. Investors would get confused

 Every regulation from the perspective of economy leaves an impact. There is a cost to every
regulation.

 We have heavily extensive law which we have implanted in our legal system addresses the
developed countries and the countries which are under developed like ours do not need such
extensive regulation on a single subject because the circumstances as well as the economic
conditions vary.

 Such extensive law bears on economy.

 In this instance, the investor would get confused about should he be protected.

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Securities Regulation-
Overview
 It has three perspectives
 International perspective
 Objectives and principles of securities regulation
 Legal framework and implementation of securities
regulation
 National perspective
 Development of securities regulation
 Regulation of securities regulation
 Reforms and future trends

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National Perspective
 Market development( developmental regulation)
 Beneficial regulation of the capital markets,
superintendence and control of corporate entities.
 Efficient & Cost effective regulation
 consultative rule making
 Facilitating implementation
 Stringent enforcement
 Regulatory role
 Advisory function
 Ensure investor protection
 National Regulatory Framework
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Reforms and Future Trends
 Effective securities regulation requires
appropriate legal framework
 Company law
 Commercial code
 Taxation laws
 Bankruptcy and insolvency
 Competition law
 Banking law
 Dispute resolution system

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Securities and Exchange
ordinance 1969
 Objective
 Protection of investors
 Ensures fair dealings and prohibits insider trading
 Regulation of markets
 Registration and regulation of stock exchange
 Dealings in securities
 Delisting and regulation of transfer of securities
 Prohibition AND liability for insider trading

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