ISLAMABAD: Pakistan is all set to introduce a new category of online-only brokers within a month to increase the number of investors in the equity market, encourage financial inclusion and reduce the risk of clearing and custody defaults.
The South Asian nation of 220 million has one of the lowest investor bases in the region’s financial markets with only 0.26 million individuals and entities benefiting from stock trading. Pakistan’s archrival India has 46 million equity investors, Bangladesh two million, Turkey 5.1 million and Indonesia 3.7 million. The country needs to add two million plus investors to reach one percent of its population.
To meet the challenge, the Securities and Exchange Commission of Pakistan (SECP) has come up with an innovative idea of online-only brokers to attract new investors to the stock market by offering incentives and guarantees to both the potential shareholders and brokers.
The SECP has rolled out a concept note for public feedback before formally launching the initiative.
“We are getting a very encouraging response to the initiative, and hopefully we will be able to launch it within a month with formulation of proper rules and regulations,” Sajid Gondal, a spokesperson for the SECP, told Arab News on Wednesday.
He said the initiative would help the authorities reach out to the tech-savvy youth across the country and provide them with an opportunity to invest in the equity market from the comfort of their homes.
“This will help us increase the investor base in the stock market by providing the public with easy access to brokers,” he said. “People can invest their hard-earned money in stocks without any fear of fraud as the market and brokers will be operating under a strict regulatory framework.”
Under the initiative, the online-only brokers will be required to maintain a minimum net worth of 7.5 million rupees while the SECP may reduce its licensing fee for the brokers to Rs50,000 instead of Rs100,000 and renewal fee to Rs25,000 instead of Rs50,000.
Presently only brokers with a net worth of 25 million rupees can offer internet-based trading under the Pakistan Stock Exchange regulations.
Other incentives include permission to online-only brokers to charge 50 percent less brokerage commission. They may also be allowed to operate as a single member company.
Reacting to the development, investment experts and economists termed it a “game changer” that could help attract a large number of new investors to the stocks and equity market.
“This will help create new job opportunities for the youth and boost our investor base that is among the lowest in the world,” Baqar Jafri, economist and chief executive officer of Investors Lounge, told Arab News.
He said the new broker category would help increase investor outreach and financial inclusion.
“This will be instrumental in enhancing investor convenience and help them perform activities like account opening, investments and divestments without having to physically visit a brokerage office,” Jafri added.
