Brokerage Company

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Brokerage company’s prime role is to act as a middleman that connects buyers and sellers for facilitating a business transaction. Brokerage companies typically receive compensation by means of commissions or fees that are charged once the transaction has been made successfully. In these days, the compensation might be paid by the exchange or by the customer, or in some cases both. Because many discount brokerages have instituted zero-commission trading, they make up for this loss of revenue in other areas, including getting paid by the exchanges for larger quantities of order flow. For example, when a trade order for a stock is executed, an investor pays a transaction fee for the brokerage company’s efforts for completion of the trade.

The real estate industry, for example, functions or follows a brokerage company format, as it is customary for real estate brokers to collaborate, with each company representing one party of the transaction to make a deal. In this case, both brokerage companies divide the commission between each. A brokerage company may also be called a brokerage firm, or simply a broker. Brokers may work for a brokerage company or operate as an independent agent.

What are Securities?

As per Securities Act 2015, securities in the case of listed instruments includes:

Asset Management Companies Rules 1995

The Federal Government is empowered to make the following rules to regulate the business of Asset Management Companies.

  • Stocks and shares of a Company (shares);
  • any instrument creating indebtedness issued by a company including, in particular, debentures, debenture stock, loan stock, bonds, notes, commercial paper, sukuk or any other debt securities of a company;
  • bonds, loan stocks, sukuk and other instruments creating indebtedness by the government, central bank or public authority (Government and public debt securities);
  • modaraba certificates, participation term certificates and term finance certificates;
  • any right (whether conferred by warrant or otherwise) to subscribe for shares or debt securities (warrants);
  • any option to acquire or dispose of any other security (options); units in a collective investment scheme, including units in or securities of a trust fund (whether open-ended or closed end);
  • the rights under any depository receipt in respect of shares, debt securities and warrants (custodian receipts); and
  • any other instrument notified by the Commission to be securities for the purposes of this Act.

Who is a Securities Broker?

A securities broker is an essential link between a consumer and the world’s financial markets, they connect the buyer with the seller. Securities brokers sell or buy stocks, bonds, and other securities on the behalf of their customers. Securities brokers usually explains the available securities services to the potential clients and give advice on the purchase or sale of particular securities. They are responsible for Monitoring the financial markets and the performance of individual securities.

Trading Rights Entitlement Certificate

Anybody who wishes to work as a securities broker, needs to apply for the Trading Rights Entitlement Certificate (TREC). The applicant(s) desiring to apply for (TREC) are required to submit a signed application in TRE Certificate Application Form to the Pakistan Stock Exchange. Upon approval of the application by the CEO of Pakistan Stock Exchange, a Certificate is issued to the respective applicant. According to Stock Exchanges (Corporatization, Demutualization and Integration) (Amendment) Act 2012, Pakistan Stock Exchange is required to issue fifteen (15) TRE Certificates each year until 2025.

Time Period

The applicant has sixty (60) days from the date of issuance of the application form to fill out and sign the form. The time period to approve or reject an application is 30 days from the date of submission of the Application to Pakistan Stock Exchange.

Fees

For issuance of new TRE Certificate = Rs. 2.5 Million along with a non-refundable application processing fee of Rs. 100,000/-

The fee has to be paid as a Pay Order in favour of Pakistan Stock Exchange along with the Application.

Eligibility Criteria

  • The applicant has to be a Public or a Private company (can’t be a single member company).
  • The minimum issued and paid-up capital of the Company must be Rs.50 million.
  • The Chief Executive of the applicant company must be a citizen of Pakistan and should not be on the board of any other company whose principal activity is investing/ trading in securities market.
  • The key managerial staff of the applicant have not held the office of the directors or have been sponsors/substantial shareholders in any company viz TRE Certificate Holder or a Member which had been declared defaulter or expelled by the Exchange or whose TRE Certificate has been cancelled/forfeited by the Exchange, prior to the date of demutualization. (Substantial shareholder is any shareholder having more than 10% shareholding);
  • Minimum two (2) Directors of the applicant company including its Chief Executive must have a minimum academic qualification of “Graduation” from a university duly recognized by the HEC or foreign qualification that is of equivalent level and have experience of at least five years in the business of buying, selling or dealing in securities;
  • The applicant company must not be engaged in any business other than that of a Broker;
  • An applicant company shall not be allowed to hold a TRE Certificate if any of their key managerial staff:
    • Have been adjudged bankrupt or have been proved to be insolvent even though they may have obtained their final discharge;
    • Have compounded with their creditors for less than full discharge of debts;
    • Have been convicted of an offence involving a fraud or dishonesty;
    • Have been at any time expelled or declared a defaulter by a Stock Exchange/PMEX or it have been debarred from trading in securities by any regulatory authorities including SECP or any court of law.

Application for Securities Brokerage License from SECP

Process

As soon as the applicant company has successfully received the Certificate, he can apply for a securities license from Securities & Exchange Commission of Pakistan (SECP) by submitting an application along with necessary documents to Pakistan Stock Exchange.

Information and Documents required along with the application:

  • General and business information: Brief background of the applicant company, containing at least name of the applicant, date and place of its incorporation, date of commencement of business, name and contact details of key management staff, the including group structure, if any, and length of experience as securities broker, if any.
  • Address of the registered office of the applicant (postal address, postal code and telephone, fax numbers.)
  • Contact details of the applicant Company (postal address, postal code, telephone number, fax numbers and e-mail address)
  • Percentage of capital that each sponsor has proposed to contribute in the company.
  • Name of the securities exchange of which the applicant is a TRE certificate holder, along-with the TRE Certificate number.
  • Details of outstanding legal proceedings, if any, initiated against the applicant, its directors or senior management officers by the Commission or any other regulatory authority.
  • Details in case the applicant, its sponsors, directors, major shareholders or senior management officers have been declared insolvent or bankrupt, or declared defaulter by any authority.
  • Details of penal actions, if any, taken against the applicant, its sponsors, directors, major shareholders or senior management officers during the last three years by the Commission or any other regulatory authority.
  • In case any associated company of the applicant is already licensed under the Securities Act, 2015, the following details shall be provided, namely:
    • Name of such associated company;
    • Details of warning notices, if any, issued to such associated company by the Commission;
    • Details of legal proceedings, if any, initiated against such associated company by the Commission or any other regulatory authority; and
    • Penal action, if any, taken against such associated company by the Commission during the last three years.
  • Details of infrastructural facilities (to be used for performing the functions of a securities broker):
  • Computer System Installed: (a) Hardware Configuration and (b) Software used.
  • Data Processing Capacity: (a) Available infrastructure (computers and other electronic equipment used for data processing and communication); (b) Available manpower; and (c) Office space (mention extent of area in square feet available)
  • Other Information
  • Details as per following format of all pending disputes in which the applicant is a party: (a) Name of the party; (b) Name and place of court / tribunal where dispute is pending; (c) Amount involved; (d) Pending since; (e) Date of last hearing; and (f) Decision at last hearing
  • List of civil and criminal offenses in which the applicant or any of its sponsors, directors or senior management officer has remained involved during the last three years.
  • Any other information considered relevant to the business of the securities brokers.
  • Any significant awards or recognition, collective grievances against the applicant.
  • List of documents to be provided along with application:
    • Copy of memorandum and articles of association of the applicant company duly certified from the concerned company registration office (CRO) containing copy of the certificate of incorporation and that of the certificate of commencement of business.
    • Copy of Forms 3, 27, 28 and 29 of the applicants duly certified from the CRO concerned.
    • Audited accounts (last three years) and half yearly and quarterly accounts (if applicable).
    • Copies of documents providing evidence of compliance with the financial resource requirements specified in the Securities Brokers (Licensing and Operations) Regulations, 2016.
    • Profile / Fit and Proper related documents of the key managerial staff of the applicant Company.
    • An undertaking from the sponsors of the applicant company that they will not sell or transfer their shares without prior written approval of the Securities & Exchange Commission.
    • An undertaking from the directors of sponsoring company and the applicant that they will inform the Commission in case of any change in the sponsors / majority shareholders of the sponsoring company.
    • An undertaking that the securities broker, its directors, sponsors, senior management officers are in compliance with all the requirements for grant of a license under the Securities Brokers (Licensing and Operations) Regulations, 2016.
    • Names and addresses of and particular of any business carried on by each person holding an interest of 10% or more in the issued share capital of the securities broker.
    • The identification of the shares held by each sponsor.
    • Bank details of the securities broker.
    • Details of the outsourcing contracts and affiliations (if any).
    • Any other information / document if required by the Commission.

After scrutinizing the application, the Pakistan Stock Exchange will send the application to SECP for further scrutiny and approval. If the application is approved by Securities and Exchange Commission of Pakistan, a license is provided by the SECP to Pakistan Stock Exchange which is forwarded to the respective TREC holder.

Along with these documents there are Undertakings, Fit and proper Criteria and Checklist of Brokers that need to be attached as well.

Fee Schedule

[See regulation 5(1) and 9(1)]

  • For renewal of securities broker licence = Rs.50,000
  • For the grant of new licence to act as a securities broker Rs.100,000

The fee can be deposited into the bank account of the Commission.

The license of securities broker is valid for a period of one year.

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