Chapter 6

CAPITAL MARKETS AND

CORPORATE SECTOR

Capital markets mobilize domestic savings and channel them efficiently to the most
productive investments. They play an important role in economic development as they
facilitate growth in the real sector by giving producers of goods and services, and the entities
tasked with infrastructure development, access to long-term financing. Developed capital
markets are, therefore, essential for economic growth and prosperity.
The increasing integration of global capital markets has made it easier for companies to
access global capital. Access to world capital markets expands investors' opportunities for
portfolio diversification. For recipient country, access to world capital markets allows
countries to borrow to smooth consumption in the face of adverse shocks. However, it has
been recognized that the risk of abrupt reversals in capital flows in the context of highly
open capital account may represent a significant cost.
Pakistan holds its position in the MSCI1 Emerging Market (EM). At least three companies
must have a market capitalization of $1.5 billion and $766 million float market
capitalization in order to be classified in an EMs. Pakistan currently has three constituents in
MSCI Emerging market: Habib Bank, Oil and Gas Development Company and MCB Bank
Ltd. A single deletion from among the three would result into downgrading Pakistan to the
Frontier Market Index.
In the first quarter of FY2020, Pakistan and the IMF agreed on a $6 billion 39-Month
Extended Fund Facility (EFF) arrangement for Pakistan to reduce economic vulnerabilities
and generate balanced growth. The government took austerity measures and the State Bank
of Pakistan (SBP) adopted a double-digit policy rate. The stabilization programme slowed
down the growth and investment. The high interest rate attracted foreign investors and
capital began flowing in to the Pakistan’s debt market. However, COVID-19 pandemic and
declining oil prices jolted the capital markets. In the face of uncertainty, foreign investors
sought shelter in the safe assets, selling their stocks and cashing in their bonds from
emerging markets, including from Pakistan. The government, SBP, and Securities and
Exchange Commission of Pakistan (SECP) took a number of measures that restored
investor’s confidence. These measures will be discussed later in this chapter.
The chapter will be covering performance of the equity market, debt market, commodity
futures market, Non-banking Financial companies, corporate sector, Islamic finance and
insurance sector in the FY2020. The chapter will also cover the reforms and regulations
introduced by the SECP, the apex regulator of the capital markets, to facilitate the capital
markets.
1
Morgan Stanley Capital International
Pakistan Economic Survey 2019
2019-20

I – Equity Market
Equity Market, usually known as a stock market, is the marketplace where public can invest,
buy and sell shares of the companies listed. Equity market gives companies access to capital
and investors a slice of ownership in a company with the potential to realize gains based on
its future performance. Equity market determines the health of an economy to some extent.
Global equity markets:
During FY2020, on global front, protests in Hong Kong, trade war between United States
and China, departure of United Kingdom from European Union, tensions between the th
United States and Iran, falling oil prices because of a standoff between Saudi Arabia and
Russia, and COVID-19 19 pandemic drove the investors’ emotions. Facing uncertainties on
multiple fronts, almost all major global indices registered a negative growth in
i the first nine
months of FY2020.
Table 6.1: World Indices (Jul 2019 – Mar 2020)
Index opening on Index closing on Percent
Country Index
01.07.19 (points) 31.03.20 (points) change
Pakistan KSE 100 Index 33,901.58 29,231.63 -13.78%
Turkey BIST 100 Index 98,662.85 89,643.71 -9.14%
MSCI-EM MSCI Emerging Market Index 1,055.71 848.71 -19.61%
Vietnam VN30 Index 864.24 610.76 -29.33%
China Shanghai Composite 3,024.62 2,750.30 -9.07%
India Sensex 39,543.73 29,468.49 -25.48%
Indonesia JCI Index 6,381.18 4,538.93 -28.87%
Hong Kong Hang Seng 28,904.04 23,603.48 -18.34%
Singapore STI Index 3,339.58 2,481.23 -25.70%
Philippines PSEi Index 8,011.47 5,321.23 -33.58%
Malaysia KLCI Index 1,674.91 1,350.89 -19.35%
Thailand SET Index 1,744.13 1,125.86 -35.45%
Source: Investing.com

Fig: 1 Global indices July 2019 – Mar 2020 return (%)

PHILIPPINES
HONG KONG

SINGAPORE
INDONESIA

MALAYSIA

THAILAND
VIETNAM
MSCI-EM
Pakistan

CHINA
Turkey

INDIA

-9.14% -9.07%
-13.78%
-19.61% -18.34% 19.35%
-19.35%
-25.48% -25.70%
-29.33%
29.33% -28.87%
-33.58%
-35.45%
Source: Investing.com

Pakistan’s equity market (Developments during FY2020):

The fiscal year 2019‐200 started with the stabilization programme of the IMF. The austerity
measures and the SBP’s double digit policy rate hurt the investors’ confidence in the first

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quarter of FY2020. After the initial dip, the KSE-100 index exhibited an upward trend as
exchange rate stabilized and the economy was on a path to recovery. The index opened at
33,901.58 points on July 1st, reaching the year’s peak of 43,218.67 points on January 13th,
2020. However, as the COVID-19 was engulfing the world, capital began flowing out of the
Pakistan’s stock market.

Box item-I: Measures taken in the wake of COVID-19

In order to facilitate capital market operations in the wake of COVID-19 pandemic, the SECP introduced a
number of measures to address challenges being faced by the capital markets participants. These are as
follows:
(i) To curtail blank selling in the stock market, which aggravated market decline, Blank Sale transactions in
Deliverable Futures Market (DFM) were allowed only on Uptick or Zero-Plus Tick for DFM April 2020
contract in 36 securities.
(ii) The duration of index-based market halts was increased from 45 minutes to 60 minutes to provide
cooling-off period to the investors and to give sufficient time to intermediaries to deposit mark to market
(MtM) margins, considering prevailing lockdowns across the country.
(iii) Statutory regulatory orders (SROs) ensured the effectiveness of their Business Continuity Plans (BCPs) to
deal with any crisis situation with particular emphasis on remote uninterrupted access to the capital
market. The securities brokers were allowed to activate and operate the Disaster Recovery (DR) terminals
for trading purposes during normal operations of the PSX.
(iv) To facilitate securities brokers in meeting any shortfall in deposit requirements against Base Minimum
Capital, the SECP provided relaxation to the extent of marking to market of Margin Eligible Securities
for a period of 60 days.
(v) The requirement of performing biometric verification at the time of opening of a new investor account
was relaxed due to limited physical mobility and social distancing requirements. The same was allowed to
be performed within 90 days of the opening of account.
(vi) To ease operational difficulties for securities brokers, alternate mode for call order recording was
specified to enable compliance while ensuring work from home arrangements.
(vii) Extension was granted in the timeline for completion of system audit of securities brokers in view of
lockdowns across the country limiting physical mobility of auditors and staff of securities brokers

Between February 26th (the date when first COVID-19 case was reported in Pakistan) and
March 31st, Pakistan’s KSE-100 index benchmark dived 23.75 percent and Rs 1,582.06
billion were wiped out of the market capitalization. Rupee depreciated by 8 percent against a
strengthened dollar between Feb 26 and Mar 31, which severely constrained the spending
power. However, in late March, government announced a fiscal stimulus package of Rs 1.24
trillion and the State Bank of Pakistan cut the policy rate by 425 basis points to 9 percent to
make up for the projected loss. On April 30th, 2020, KSE-100 closed at 34111.64, (up by
16.7 percent since March 31st) and market capitalization closed at Rs 6376.71 billion,
gaining Rs 755.77 billion since March 31st. The KSE-100 index exhibited a modest growth
of 0.61 percent in the first ten months of the CFY, whereas market capitalization lost Rs
510.58 billion during the Jul-April FY2020 period.
The low turnover in the first quarter of FY2020 and in February indicates Investors were
unwilling to put their money at risk by acquiring the shares of a company with low share
turnover.

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Pakistan Economic Survey 2019-20

Table 6.2: Month-wise performance of KSE-100 Index

Months 2018 – 2019 Months 2019 – 2020
KSE 100 Market Turnover KSE 100 Market Turnover
index Capitalization in shares index Capitalization in shares
(Rs Billion) (Billions) (Rs Billion) (Billions)
Jul-18 42,712.43 8,749.52 3.75 Jul-19 31,938.48 6,384.30 1.76
Aug-18 41,742.24 8,677.98 3.6 Aug-19 29,672.12 6,082.04 2.03
Sep-18 40,998.59 8,402.82 2.49 Sep-19 32,078.85 6,406.55 2.18
Oct-18 41,649.36 8,321.42 5.03 Oct-19 34,203.68 6,690.04 4.37
Nov-18 40,496.03 8,067.33 4.16 Nov-19 39,287.65 7,511.97 6.40
Dec-18 37,066.67 7,692.79 2.71 Dec-19 40,735.08 7,811.81 6.45
Jan-19 40,799.52 8,124.08 3.24 Jan-20 41,630.93 7,851.16 5.68
Feb-19 39,054.60 7,817.67 2.92 Feb-20 37,983.62 7,094.67 2.91
Mar-19 38,649.34 7,868.61 2.53 Mar-20 29,231.63 5,620.94 4.71
Apr-19 36,784.44 7,505.31 3.29 Apr-20 34,111.64 6,376.72 4.60
May-19 35,974.79 7,240.44 2.77 May-20
Jun-19 33,901.58 6,887.30 2.57 Jun-20
Source: Pakistan stock exchange (PSX)

Despite the double digit policy rate, the upward trajectory depicted in the Figures 1 & 2
(from mid-October to January) can be attributed to timely release of PSDP funds, stable
exchange rate; and improvement in macro indicators (trade balance, foreign direct
investment, remittances). The freefall because of COVID-19 outbreak and subsequent
recovery is clearly visible in the figures below:

Fig-2: KSE-100 Index (Jul 2019 - Apr 2020)

45,000

40,000

35,000

30,000

25,000

20,000
1-Jul-19 1-Aug-19 1-Sep-19 1-Oct-19 1-Nov-19 1-Dec-19 1-Jan-20 1-Feb-20 1-Mar-20 1-Apr-20

Source: Pakistan Stock Exchange

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 Capital Markets and Corporate Sector

Fig-3: Pakistan Stock Exchange Market Capitalization July 2019-Apr 2020

8,500

8,000

7,500

7,000

6,500

6,000

5,500

5,000

4,500

4,000
1-Jul-19 1-Aug-19 1-Sep-19 1-Oct-19 1-Nov-19 1-Dec-19 1-Jan-20 1-Feb-20 1-Mar-20 1-Apr-20

The total funds mobilized between July 2019 and March 2020 in the national stock
exchange amounted to Rs 250,020 million, as compared to Rs 22,350 million in the
corresponding period last year. The significant difference is due debt amount issued, which
is Rs 230,624 million during Jul-Mar FY2020 period as compared to Rs 14,000 million in
the same period in FY2019.
Around $ 130 million worth of securities were offloaded by foreign investors which were
absorbed by domestic investors.
Table 6.3: Local investors' portfolio investment (LIPI) during Jul-Mar FY 2020
GROSS BUY GROSS SELL NET BUY / NET BUY /
(Million) (Million) (SELL) (SELL) ($ Million)
(Rs Million)
Individuals 1,172,641.18 -1,149,832.84 22,808.34 144.36
Companies 92,210.62 -91,369.40 841.22 5.87
Banks / DFI 84,189.08 -91,563.65 -7,374.56 -48.03
NBFC 3,560.03 -3,166.66 393.36 2.58
Mutual Funds 116,849.46 -130,417.01 -13,567.55 -85.10
Other Organization 24,150.24 -20,202.79 3,947.45 25.09
Broker Proprietary Trading 364,698.28 -366,001.61 -1,303.32 -8.57
Insurance Companies 61,944.72 -47,340.79 14,603.92 94.0
Lipi Net 1,920,243.65 -1,899,894.78 20,348.87 130.22
Source: Pakistan Stock Exchange

The average daily trading value (T+2)2 from July 2019 – March 2020 was Rs 7.13 billion
and the average daily turnover was 194.08 million shares. The average daily trading value in
futures was Rs 3.4 billion and the trading volume was 87.01 million shares. No new
company was listed with the PSX during July-Mar 2019-20, as compared to two companies
in the FY2019. It implies that companies didn’t want to take a risk by issuing an IPO3 during
uncertain economic times.

2
T+2 is a shorthand for trade date plus two days indicating when securities transactions must be settled.
3
Initial public offering

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Pakistan Economic Survey 2019-20

Table 6.4: Profile of Pakistan Stock Exchange

2015-16 2016-17 2017-18 2018-19 2019-20
(till 31.03.20)
Total No. of Listed Companies 559 560 558 544 530
Total Listed Capital - Rs in Million 1,289,081 1,317,220 1,297,375 1,340,270 1,387,439
Total Market Capitalization - Rs in Million 7,588,472.20 9,522,358 8,665,045 6,887,301 5,620,941
New Companies Listed during the year 4 5 6 2 0
Average Daily Shares Volume – 221 363 187 164 194
(Shares in Million) (YTD)
Total Volume traded - (Million) (YTD) 55,430.30 88,599 46,532 39,943 52,843
Source: Pakistan stock exchange

Market Capitalization of each sector at Pakistan Stock Exchange as of 31st March,

2020:
During July-March FY2020, a total of Rs 1,266.36 billion was wiped out from the market
capitalization of the PSX. Below is the detail of each sector:
Table 6.5: Market capitalization of each sector:
Number of Market cap on Market cap on Percent
Sectors listed companies 01/07/2019 03/31/2020 Change
(Rs Million) (Rs Million)
Automobile assembler 13 247,717.08 186,203.69 -24.8%
Automobile parts & accessories 09 47,103.45 38,707.71 -17.8%
Cable & electrical goods 07 25,203.75 20,757.59 -17.6%
Cement 22 306,192.39 317,594.18 3.7%
Chemical 27 273,461.23 264,209.75 -3.4%
Close - end mutual fund 06 5,158.51 3,253.83 -36.9%
Commercial banks 20 1,284,983.50 1,013,621.54 -21.1%
Engineering 19 56,935.49 57,344.73 0.7%
Fertilizer 06 440,313.20 417,033.98 -5.3%
Food & personal care products 24 537,140.29 550,206.71 2.4%
Glass & ceramics 11 35,787.19 31,710,.45 -11.4%
Insurance 29 136,743.45 127,078.49 -7.1%
Inv. banks / inv. cos. / securities cos. 30 90,597.53 85,656.43 -5.5%
Jute 02 123.30 123.30 0.0%
Leasing companies 30 4,927.25 4,283.22 -13.1%
Leather & tanneries 05 18,281.82 23,614.76 29.2%
Miscellaneous 09 62,375.12 59,833.89 -4.1%
Modarabas 30 12,432.58 11,435.56 -8.0%
Oil & gas exploration companies 04 1,130,640.63 719,825.77 -36.3%
Oil & gas marketing companies 09 194,363.60 141,425.31 -27.2%
Paper & board 10 45,307.66 41,388.57 -8.6%
Pharmaceuticals 12 174,445.35 202,829.98 16.3%
Power generation & distribution 17 304,047.13 230,391.06 -24.2%
Refinery 04 56,227.64 45,001.38 -20.0%
Sugar & allied industries 29 57,022.22 64,451.37 13.0%
Synthetic & rayon 11 35,754.10 42,842.45 19.8%
Technology & communication 12 73,508.90 62,772.74 -14.6%
Textile composite 58 242,099.65 191,154.87 -21.0%
Textile spinning 69 41,875.0 40,515.72 -3.2%
Textile weaving 11 2,466.84 2,648.63 7.4%

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Table 6.5: Market capitalization of each sector:

Number of Market cap on Market cap on Percent
Sectors listed companies 01/07/2019 03/31/2020 Change
(Rs Million) (Rs Million)
Tobacco 03 860,224.66 534,128.93 -37.9%
Transport 05 52,916.36 58,203.81 10.0%
Vanaspati & allied industries 06 6,854.94 6,445.37 -6.0%
Woollen 02 1,453.76 1,518.40 4.4%
Real estate investment trust 01 22,615.02 22,726.21 0.5%
Exchange traded funds 02 N/A 0.39 N/A
Total 6,887,300.78 5,620,940.91 -18.4%
Source: Pakistan stock exchange

Performance of selected Blue Chips:

Profit after tax, Earnings per Share (EPS), and Price earning ration (P/E) with necessary
details of some of the selected companies are given in the following table:
Table 6.6: Performance of Selected Blue Chips
Symbol Name Shares Price Market Cap Profit After EPS P/E
Outstanding Rs Million Tax
(Million) (Rs Million)
PAKT Pak Tobacco 255.49 1,654.98 422,837.11 12,889.22 50.45 32.81
OGDC Oil & Gas Dev. 4,300.92 76.99 331,128.47 118,385.78 27.53 2.80
NESTLE Nestle Pakistan 45.34 6,700.00 303,841.99 7,354.46 162.17 41.31
PPL Pak Petroleum 2,720.96 71.81 195,392.67 61,632.36 22.65 3.17
MCB MCB Bank Ltd 1,185.06 149.28 176,905.75 23,976.83 20.23 7.38
ENGRO Engro Corp 576.16 266.90 153,777.96 14,303.31 24.83 10.75
HBL Habib Bank 1,466.85 103.23 151,423.18 15,064.18 10.27 10.05
UBL United Bank 1,224.17 100.81 123,409.55 19,133.77 15.63 6.45
LUCK Lucky Cement 323.37 370.70 119,875.11 10,490.22 32.44 11.43
MARI Mari Petroleum 133.40 891.10 118,874.96 24,327.08 182.36 4.89
FFC Fauji Fert. 1,272.23 93.01 118,330.87 17,110.49 13.45 6.92
COLG Colgate Palm 57.54 2,049.00 117,911.59 3,510.80 61.01 33.59
PMPK Philip Morris 61.58 1,795.11 110,543.48 -1,979.99 -32.15 -55.83
Pak.
HUBC Hub Power Co. 1,297.15 68.27 88,556.73 8,036.98 6.20 11.02
MEBL Meezan Bank 1,286.11 65.09 83,713.0 15,232.07 11.84 5.50
ABL Allied Bank Ltd 1,145.07 71.12 81,437.65 14,112.91 12.32 5.77
KEL K-Electric Ltd. 27,615.19 2.83 78,150.99 17,273.61 0.63 4.52
EFERT Engro Fert. 1,335.29 57.66 76,993.36 14,303.31 10.71 5.38
POL Pak Oilfields 283.85 262.21 74,429.64 16,871.70 59.44 4.41
SCBPL St.Chart.Bank 3,871.58 18.84 72,940.66 16,017.44 4.14 4.55
Source: Pakistan stock exchange

Debt markets:
Debt market is the market where debt instruments are traded. It provides an additional
avenue to the corporate sector to raise funds. Due to high interest rates and appreciation in

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Pakistani rupee in terms of US dollar, international investors found Pakistan’s debt market
an attractive investment. However, after COVID-19 pandemic, money started flowing out of
the Pakistan’s debt market. The investors took out over $ 1.7 billion from T-bill investments
in the month of March 2020.
During July-March FY2020, no debt instrument was publicly placed while fifteen debt
securities were privately placed. Their break-up is given below:
Table 6.7: Debt securities
Sr. No. Type of Security No. of Issues Amount
(Rs in billions)
i. Privately Placed Commercial Papers* 7 37.6
ii. Privately Placed Term Finance Certificates** 3 19.37
iii. Privately Placed Sukuk ** 5 19.20
Total 15 76.17
* : by (i) K-Electric Limited (Rs 8.00 billion), (ii) K-Electric Limited (Rs 9.5 billion), (iii) The Hub Power
Company Limited (Rs 5.0 billion),(iv) TPL Corporation Limited (Rs 1.1 billion),
(v) K-Electric Limited (Rs 4.3 billion, (vi) K-Electric Limited (Rs 4.3 billion) and
(vii) K-Electric Limited (Rs 5.4 billion)
** : by (i) Habib Bank Limited (Rs 12.37 billion), (ii) Askari Bank Limited (Rs 6 billion) and (iii) Pakistan
Mortgage Refinance Company Limited (Rs 1 billion):
*** : by (i) The Hub Power Company Limited (Rs 4.5 billion), (ii) The Hub Power Company Limited (Rs 7.0
billion); (iii) Pak Elektron Limited (Rs 1.2 billion), (iv) Masood Textile Mills Limited (Rs 2.5 billion) and (v)
Meezan Bank Limited (Rs 4 billion);
Source: Securities and Exchange Commission of Pakistan

Outstanding debt issues:

As of March 31, 2020, 106 corporate debt securities were outstanding with an amount of
Rs 651.68 billion, comprising following categories:
Table 6.8: Corporate debt securities (outstanding)
Amount
Sr. No. Name of security No. of issues outstanding
(Rs in billion)
i. Sukuk 46 484.76
ii. Privately Placed Term Finance Certificates (PP-TFCs) and listed 43 116.99
on OTC
iii. Listed Term Finance Certificates (L-TFCs) 13 34.71
iv. Privately Placed Commercial Papers 4 15.22
Total 106 651.68
Source: Securities and Exchange Commission of Pakistan

National Saving Schemes:

The achievements made by the Central Directorate for National Savings (CDNS) in the first
nine months and initiatives in the pipeline are as under:

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Achievements of Annual Targets:-

The CDNS, being the foremost institution providing the avenue to general public to park
their savings, has been able to not only achieve the targets assigned but also surpassed the
targets by a big margin. As of 31.03.2020, the CDNS has achieved 124 percent of the gross
and 61 percent of proportionate targets.
The product basket of the National Savings Schemes (NSS) ranges from three months Short-
Term Savings Certificates (STSC) to ten years' long term Defense Savings Certificates.
Table 6.9: Product basket of the National Savings Scheme
Rate of Return
S.No Name of Scheme Maturity Period Tax Status
(per annum)
1 Defence Savings Certificates 8.54% 10 Years Taxable
2 Special Savings Certificates/Accounts 8.10% (Average) 3 Years Taxable
3 Regular Income Certificates 8.28% 5 Years Taxable
4 Savings Account 7.00% Running Account Taxable
5 Pensioners' Benefit Account 10.32% 10 Years Tax exempt
6 Bahbood Savings Certificates 10.32% 10 Years Tax exempt
7 Shuhada Family Welfare Account 10.32% 10 Years Tax exempt
8 National Prize Bonds (Bearer) 10.00% Perpetual Taxable
9 Premium Prize Bonds (Registered) * 7.80% Perpetual Taxable
10 Short Term Savings Certificates (STSC)
STSC 3 Months 7.80% 3 Months Taxable
STSC 6 Months 7.50% 6 Months Taxable
STSC 12 Months 6.95% 12 Months Taxable
*Effective from 10.03.2020)
Source: Central Directorate of National Savings

Scheme wise net investment is as under:

Table 6.10: National Savings Schemes (net investment) (Rs Million)
Name of Scheme 2015-16 2016-17 2017-18 2018-19 2019-20
1 Defence Savings 8,053.00 16,620.00 10,743.61 57,171.04 92,892.98
Certificates
2 National Deposit Scheme (0.26) (0.69) 0.05 (0.03) (0.01)
3 Khaas Deposit Scheme (2.00) (51.43) (0.19) (0.04) (0.05)
4 Special Savings Certificates (1,932.80) (39,344.59) (51,180.06) 31,842.49 1,125.51
(Registered)
5 Special Savings Certificates - (0.75) (0.55) - (0.01)
(Bearer)
6 Regular Income Certificates (16,223.03) (20,950.65) 8,726.28 142,088.06 71,637.74
7 Bahbood Savings 63,761.07 57,432.10 45,395.28 119,573.11 77,553.90
Certificates
8 Pensioners' Benefit Account 20,645.05 18,716.71 21,504.37 43,367.37 31,186.23
9 Savings Accounts 3,807.69 4,684.42 3,412.99 (166.22) 1,327.42
10 Special Savings Accounts 30,924.10 65,246.58 59,939.19 (132,393.53) 36,478.24
11 Mahana Amdani Accounts (63.01) (55.20) (46.70) (73.84) (72.67)
12 Prize Bonds 123,901.93 97,791.58 101,575.66 40,432.08 (168,505.04)
13 National Savings Bonds - - - - (137.00)
14 Short Term Savings 157.88 2,077.37 560.55 761.00 5,879.62
Certificates

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Pakistan Economic Survey 2019-20

Table 6.10: National Savings Schemes (net investment) (Rs Million)

Name of Scheme 2015-16 2016-17 2017-18 2018-19 2019-20
15 Premium Prize Bonds - 2,921.72 2,323.20 2,819.96 11,542.76
(Registered)
16 Postal Life Insurance - 2,529.79 875.45 1,248.42 (541.08)
17 Shuhda Welfare Accounts 42.14 26.85
Grand Total 233,029.61 207,616.95 203,829.13 306,712.00 160,395.40
Source: Central Directorate of National Savings

Initiatives in the Pipeline:

1) Sharia product of National Savings
2) Overseas Pakistanis Savings Certificates (“OPSCs”)
3) Launch of Rs 100,000 Premium Prize Bond (Registered)
4) Scripless issuance and introduction of registered prize bonds amongst all denominations
of Bearer Bonds
5) Debit Card Launch & Membership of 1-Link System
6) Automation/Computerization of remaining NSCs
III- Commodity futures market:
Pakistan Mercantile Exchange Limited (PMEX) is the first technology driven, web-based,
demutualized multi-commodity futures exchange in Pakistan. The exchange offers a diverse
range of international commodities and financial futures, including gold, silver, crude oil,
currency pairs, as well as local agricultural products including cotton, wheat, rice and spices.
Performance of PMEX: During the period 1st July 2019 to 31st March 2020, 2.091 million
various commodity futures contracts including gold, crude oil, US equity indices and FX
pairs worth Rs 1.75 trillion were traded on the PMEX.
IV- Non Banking Finance Companies
Mutual Funds: As of 29th February 2020, assets under management (AUM) of the mutual
funds stood at Rs 724.39 billion. Money Market Funds dominated the industry with the
largest share i.e. 35.63 percent of the mutual fund industry, followed by equity funds
comprising 28.09 percent and income funds having an industry share of 24.38 percent.
Investment Advisory: Twenty-one Non-Bank Finance Companies (NBFCs) have licenses
to conduct investment advisory business in addition to asset management services, while out
of twenty-one, four NBFCs have an exclusive license for conducting investment advisory
services. As of 29th February 2020, the total discretionary/non-discretionary portfolios held
by all of the NBFCs were of Rs 230.39 billion Major highlights of the mutual fund industry
are stated below:
Table 6.11: Mutual fund industry
Total number of Total Assets
Description
Entities (Rs in billion)
Asset management / Investment advisory companies 23 39.07
Mutual Funds / Plans 305 724.39
Discretionary / non-discretionary portfolio - 230.40
Total size of the industry - 993.85
Source: Securities and Exchange Commission of Pakistan

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Box item-II : The NBFC Reforms and Developmental Activities

The SECP has taken following initiatives to facilitate growth of the mutual fund industry and to safeguard the
investor’s interest:
Approval granted for the launch of Pakistan’s first two Exchange-Traded Funds (ETFs).
Detailed guidelines issued for assessing suitability and standard risk categorization of collective
investment schemes (CIS) to curb mis-selling of mutual fund products to the investors.
Equity oriented schemes allowed to lend up to a certain percentage of net assets through Securities
Lending and Borrowing (SLB).
Investments allowed in units of Exchange-Traded Funds by equity-oriented mutual funds.
Equity-oriented mutual funds allowed to invest in exchange-traded equity future contracts.
Investment limit for single equity CIS increased to thirty percent from ten percent through amendments to
Employees Contributory Funds (Investment in Listed Securities) Regulations, 2018.
Reduction in regulatory fees (formation, licensing and registration of CIS, Private Funds and REIT
Schemes) applicable on NBFCs issued on 31st March 2020.
Amendments in the NBFC & NE Regulations 2008 and removal of regulatory pricing caps for AMCs.
Approval of a new category of Credit Guarantee Company as an NBFC that will issue guarantees for
infrastructure projects.
Approval for incorporation of the first NBFC that will solely focus on financing for SMEs.
Approval granted for formation of the NBFC that will provide invoice discounting facilities to SMEs.
Exposure limits for micro-financing enhanced: for housing and micro enterprise loan amount increased
from Rs 500,000 to Rs 1.5 million, whereas for individual loan amount increased from Rs 200,000 to Rs
500,000.
In the wake of COVID-19 pandemic, the maximum period of borrowing by mutual funds for redemption
purposes has been extended from existing 90 days to 365 days.

Private Equity and Venture Capital Funds Management Services:

As on 29th February 2020 the number of NBFCs licensed by the Commission to undertake
the business of private equity and venture capital fund management services stood at four.
These NBFCs successfully launched five private equity and venture capital funds, and the
combined size of these five private funds stands at Rs 6,779 million.
Voluntary Pension Schemes: The assets under management (AUM) of the voluntary
pension industry currently stand at Rs 30.15 billion as of 29th February 2020.
Table 6.12: Voluntary pension schemes
Description Status as of 29th February, 2020
Total assets of pension industry (Rs in billion) 30.15
Total number of pension funds 19
Total number of pension fund managers 10
Source: Securities and Exchange Commission of Pakistan

Lending NBFCs: Lending NBFCs includes leasing companies, investment finance

companies, housing finance companies, discount houses and non-bank microfinance
companies. Highlights of each category are as under:

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Table 6.13: List of lending NBFCs

S.No Lending NBFC No. of companies Growth in sector Asset size as of
size in the first 29th Feb, 2020
nine months of (Rs Billion)
FY2020 (%)
1 Leasing Companies 7 3.96 10.55
2 Investment Banks 12 3.52 65.41
3 Non-Bank Microfinance Companies 25 5.68 123.35
4 Real Estate Investment Trusts (REITs): 1 (Dolmen city
- 49.23
REIT)
5 Modarabas 38 - 52.5
Source: Securities and Exchange Commission of Pakistan

V- Corporate Sector
Measures for e-Governance
Unified Online Company Registration System: In the first half of FY2019, the SECP
completed integration of its eServices with the Federal Board of Revenue (FBR) and the
Employees Old Age Benefits Institution (EOBI) at the Federal level and with Business
Registration portals of Punjab and Sindh at the Provincial level. Consequently, the SECP’s
eServices have become a One Stop Shop (OSS) for registration of a company with the
SECP, FBR, EOBI, Punjab Employees Social Security Institution (PESSI), Sindh
Employees Social Security Institute (SESSI), Excise & Taxation Department and Labor
Department of Punjab and Excise, Taxation & Narcotics Control Department and Labor
Department of Sindh.

Box item-III
This landmark achievement has been recognized in the World Bank Doing Business Report 2020, improving
Pakistan’s ranking in “Starting a Business” indicator by 58 points from 130 last year to 72 this year. Moving
forward, the SECP plans to extend OSS facility to Khyber Pakhtunkhwa and Baluchistan on the same pattern.

Integration with FMU: The SECP took the initiative by conducting “Pilot” project of
linking the SECP’s database (CRCS) with the Anti Money Laundering software (goAML).
The SECP is the first institution to establish such data connectivity with the FMU.
Company incorporation trend: During first nine months of FY2020, 13,875 new
companies were incorporated with the SECP. As compared to the corresponding period of
the last financial year, it represents a growth of 27 percent. Around 97 percent companies
were incorporated through the online process.
Establishment of Secured Transactions Registry for unincorporated entities: An
electronic Secured Transactions Registry (STR) is required to be established under the
Financial Institutions (Secured Transactions) Act, 2016 (STA) for registration of security
interest over movable assets by unincorporated entities. Federal Government has delegated
the functions of the STR to the SECP. The creation of a secured transaction registry will
facilitate small borrowers from SME and agriculture sector to secure credit from financial
institutions against their movable assets including receivables, intellectual property,
inventory, agricultural produce, petroleum or minerals, motor vehicles, etc.

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Box item-IV: Regulatory Relief to Corporate Sector to dilute impact of COVID-19 Pandemic:
To facilitate companies and businesses in dealing with the current crisis, the SECP has relaxed the regulatory
deadlines under Companies Act. These measures include:
i. A general extension of 30 days has been granted to companies, having FY ended on December 31,
2019, for holding their Annual General Meeting and laying of financial statements before members for
approval.
ii. Companies have been directed to modify their usual planning for General Meetings and consider
provision of video link facilities, webinar or other electronic means.
iii. Companies can circulate notices of general meetings and annual reports to members, by post or
electronically.
iv. Extension of 30 days has been granted to all companies in filing of statutory returns due on or after
March 24, 2020 without any additional fee or penal action.
v. Extension of 30 days has been granted to all companies in filing of first quarterly accounts for the
quarter ended on March 31, 2020.
vi. In order to hold meetings of the BODs, companies have been advised to prioritize public safety, while
ensuring corporate compliance, and all underlying circumstances shall be given due consideration by
the SECP while enforcing regulatory compliance.
vii. Companies are encouraged to make a necessary arrangement for the use of technology and related
applications in order to enable them to work from home to meet the regulatory compliance.
viii. Companies have been advised to direct their CSR activities towards prevention, detection and cure of
COVID-19 and ensure effective contingency planning and business continuity, while mitigating health
risk to employees, customers and communities.
ix. All companies have been allowed relief from the requirements contained in IFRS 9 (IAS 39, IFRS for
SMEs and AFRS for SSEs) which require recording of fair value adjustments of equity instruments held
as FVPL (Fair Value through Profit or Loss) in the Statement of Profit or Loss, from March 31, 2020
till June 30, 2020.

Box item-V: Rules and Regulations:

(1) Corporate Rehabilitation Regulations, 2019
The SECP notified the Corporate Rehabilitation Regulations, 2019 in terms of section 41 of the Corporate
Rehabilitation Act, 2018 (CRA). The CRA provides a framework for rehabilitation and re-organization of
distressed corporate entities and their businesses.
(2) Corporate Restructuring Companies Rules, 2019
Corporate Restructuring Companies Rules, 2019 is notified to provide licensing procedure for corporate
restructuring companies in terms of section 15 of the Corporate Restructuring Companies Act, 2016.
(3) Draft Financial Institutions (Secured Transactions) Rules, 2019
To give effect to the Secured Transaction Registry required to be established under the Financial Institutions
(Secured Transactions) Act, 2016, draft Financial Institutions (Secured Transactions Registry) Rules, 2019
have been submitted for approval of the Federal Government.
(4) Panel of Provisional Managers and Official Liquidators Regulations, 2019
The regulations came into force vide SRO 1352(I)/2019 dated November 11, 2019, and provide eligibility
criteria for inclusion in the panel of provisional managers and official liquidators.
(5) Amendments to the Listed Companies (Buy-Back of Shares) Regulations, 2019
The SECP amended the listed Companies (Buy Back of Shares) Regulations, 2019. Pursuant to the
amendments, listed companies can buy-back their own shares after expiry of the six months from the last issue

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of further share.
(6) Amendments to the Employees Contributory Funds (Investment in Listed Securities) Regulations,
2018
The SECP amended the Employees Contributory Funds (Investment in Listed Securities) Regulations, 2018
and the transition period has been increased from one year to 3 years, so that investments by the provident
funds or other contributory funds, which are beyond the investment limits specified in these regulations are
reduced gradually and brought in conformity with parameters of these regulations.
(7) Listed Companies (Code of Corporate Governance) Regulations, 2019
To facilitate businesses, the SECP revamped the corporate governance regulatory regime with a shift from,
“Mandatory” to “Comply or Explain” approach.
(8) Companies (Further Issue of Shares) Regulations, 2020
The SECP has revamped the Companies (Further issue of Shares) Regulations, 2018 and the Companies
(Further Issue of Shares) Regulations, 2020 have been notified. The revised framework is more focused and
certain conditions that were creating an extra burden on the issuers have been removed, such as
(i) Restricting more than one right issues in six months;
(ii) Statement by the Board regarding compliance of all requirements;
(iii) Requirement of declaration by the board of directors;
(iv) Requirement for preparation of the financial projections; and
(v) Conditions for issuance of ESOS have been simplified
(9) Amendments to fourth and fifth schedules of the Companies Act, 2017
The SECP on July 29, 2019 notified certain amendments in fourth and fifth schedules of the Companies Act,
2017. The amendments were aimed to reduce the excessive disclosure burden and to remove impediments in
compliance with laws by the corporate sector.)

VI- Islamic Finance Industry

From July 2019 to March 2020, one company obtained the certificate of Shariah compliance
under Shariah Governance Regulations, 2018 and also a Shariah compliance certificate for
issuance of listed sukuk has been issued to the company. Moreover, a total of Nine Shariah
Advisors have been registered with the SECP, including two private limited companies for
providing Shariah advisory services.
Shariah Advisory Committee: The SECP constituted Shariah Advisory Committee (SAC),
under section 11A of the Securities and Exchange Commission of Pakistan Act, 1997. The
committee has taken over the mandate of Shariah Advisory Board constituted in 2015.
Shariah compliant ETF: The Shariah Advisory Committee of the SECP has approved the
Shariah Compliant Exchange Traded Fund (ETF) product subject to certain conditions.
PMEX commodity Murabaha: The Shariah Advisory Committee has reviewed and
approved the PMEX commodity Murabaha transactions at the PMEX platform with an
underlying high speed diesel (HSD) commodity subject to the compliance of Shariah
principles and observance of law of the land and fulfillment of certain conditions.
VII- Insurance Sector
The insurance sector in Pakistan comprises of nine life insurers (including two family

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takaful operators), forty non-life insurers (including three general takaful operators), and one
state- owned national reinsurer. Major achievements in the insurance sector from July 2019
to March 2020 are as follows:
Regulatory Sandbox Guidelines, 2019: To promote innovation in financial sector and
encourage startups, the SECP has issued the Regulatory Sandbox Guidelines, 2019. This is
Pakistan’s first regulatory sandbox in the financial services industry. The guidelines are
aimed at reducing regulatory obligations.
Centralized Insurance Repository for Life Insurers: In order to ensure collaboration
between life insurance industry and Central Depository Company (CDC), the Centralized
Insurance Repository has been launched, enabling holding of details of life insurance/ family
takaful polices issued by the insurers in dematerialized form.
Guidelines on Cyber-security Framework for Insurance Sector, 2020: The SECP has
issued Guidelines on Cyber-security Framework for Insurance Sector, 2020 which stipulates
various risk management measures to ensure safe and robust information technology
systems of insurance companies, data protection and confidentiality of private data to
maintain the confidence of policyholders in the insurance sector.
General Takaful Accounting Regulations, 2019: The SECP notified the General Takaful
Accounting Regulations, 2019 through S.R.O. 1416(I)/2019 dated 20th November, 2019.
The regulations provide the principles based on which accounting and reporting of general
takaful business of general takaful operators and window general takaful operators shall be
made.
Financial Reporting Requirement for Family Window Takaful Operations: The SECP
has introduced financial reporting requirements for life insurance companies carrying on
window takaful operations under the Takaful Rules, 2012 through Circular no. 15 of 2019
dated 18th November, 2019. The requirements are aimed at increasing transparency and
clarity regarding the takaful operation of the family takaful operators.
Ease of doing business (EODB) – Policy Advocacy with Revenue Authorities for
Exemption of Sales Tax from Health and Life Insurance: The SECP has taken up the
issue of imposition of sales tax on life and health insurance with the provincial revenue
authorities with the aim to create conducive and business friendly environment for the
insurance industry in Pakistan.
Reduction in Cost of Doing Business: With an aim to improve ease of doing business and
to facilitate the insurance industry, the SECP reduced the fees applicable on insurance
companies and insurance brokers vide S.R.O 1226(I)/ 2019 dated 15th October, 2019.
Implementation of Motor Third Party Liability Insurance Scheme to Compensate the
Victims of Road Accidents: Motor Third Party Liability insurance offers insurance
protection against death and bodily injury to the victims of the road traffic accidents or their
legal heirs. The law provides compensatory remedy for all such accident victims as
provisions contained in the saved Chapter VIII of the Motor Vehicles Act, 1939 make it
compulsory for all the motor vehicles owners to have the motor third party liability
insurance cover. The Insurance Division had put forward a proposal to amend the Motor

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Vehicles Act, 1939 for smooth implementation of the Motor Third Party Liability Insurance
Scheme to compensate the road accident victims. The proposed amendments are under
process and will be effective soon.
EODB – Simplification of Life Insurance Product Submission Regime Applicable on Life
Insurance Companies. With the aim of bringing efficiencies in the processing of life insurance
product submission, the SECP has notified simplified submission requirements for standardized
products of the life insurers vide S.R.O 234(I)/2020.

VII - Capital Market Reforms and Developmental Activities

1. Introduction of Circuit Breaker and Market Halts
The SECP has implemented phased expansion of applicable circuit breakers on individual
scrips from existing 5 percent to 7.5 percent for improving price discovery and enabling
easy exit from the market for the investors. Further, the SECP has introduced market halts in
the stock market whereby movement of 5 percent in KSE-30 index either way would trigger
temporary suspension of trading at stock exchange to prevent irrational price fluctuations
and to give the market a cooling-off period and provide facility to brokers to deposit their
margins.
2. Introduction of Standardized Scale of Brokerage Commission
A minimum brokerage commission of 3 paisa/share or 0.15 percent of traded value,
whichever is higher, has been made effective along with a maximum allowable commission
rate of 2.5 percent of traded value. Implementation of commission scale by the SECP is
aimed at ensuring quality of brokerage services provided by securities brokers.
3. Launch of Exchange-Traded Funds (ETFs)
The ETF regulations aim to provide maximum facilitation to fund managers and market
makers through streamlined regulatory requirements based on international benchmarks.
after the introduction of requisite governing structure, the PSX successfully launched 2
ETFs on 24th March 2020, thus providing a new, low cost and well-diversified investment
avenue for the investors.
4. Launch of Murabaha Share Financing
In order to promote Shariah complaint financing and encourage liquidity in the capital
market, the SECP approved regulatory framework for Murabaha Share Financing (MSF)
which will pave the way towards realizing the untapped potential of Shariah complaint
segment. The MFS regulatory framework will enable National Clearing Company of
Pakistan Limited (NCCPL) to launch platform which will cater to the needs of investors
willing to avail Shariah compliant modes to finance their transactions.
5. Introduction of New Brokerage Regime
In order to enhance security of investor assets with the securities brokers, regulatory
framework for a new broker regime has been introduced involving categorization of
securities brokers according to their financial resources and governance standards. Under the
revised regime, only securities brokers having requisite net worth, corporate governance &
compliance standards and rating requirements shall retain custody of investor assets.
Moreover, small sized brokerage houses shall retain limited custody of assets and

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accordingly would be subjected to reduced regulatory requirements.

6. Revamping Margin Financing (MF) Product
The SECP approved amendments in the NCCPL Regulations to remove practical difficulties
and introduce reforms in margin financing system. The brokers were allowed, where they
may extend financing to their customers by executing bilateral financing agreements with
banks, to pledge 75 percent margin financed securities by broker extending financing from
their own resources in favor of the NCCPL to meet margin requirement against exposure in
ready market subject to fulfillment of additional conditions of net worth, credit rating and
statutory auditors. The additional conditions include net worth of more than Rs 250 million,
minimum credit rating i.e. long term (A-) or short term (A2) rating and having statutory
auditor of Category ‘A’ from the SBP Panel of Auditors.
7. Rationalization of Fee Structure of Frontline Regulators
The SECP has reduced market costs and rationalized fee structures of the Pakistan Stock
Exchange (PSX), Central Depository Company (CDC) and the NCCPL for maximum
facilitation of the market participants.
8. Safeguarding Investors’ Interests
The SECP made necessary regulatory amendments in the PSX regulations to streamline
claim verification process in case of defaulted brokers, by including mandatory requirement
to engage independent expert and completion of process within prescribed time. Further,
regulations governing customer compensation fund have been amended to rationalize
disbursement limits for enhancing investor protection. The SECP has also withdrawn
discretionary trading option of Pakistan Mercantile Exchange Limited (PMEX) brokers in
order to safeguard investors’ interests.
9. Wider Investor Outreach and Investor Facilitation
In order to enhance investor outreach, the SECP has implemented a framework to enable
online account opening. Further, to increase the retail base, a simplified account opening
process has been introduced for low risk investors whereby maximum limit of Sahulat
Account has been enhanced from Rs 500,000 to Rs 800,000. Practical issues of market
participants in meeting Know Your Customer (KYC) requirements relating to the launch of
Centralized Know Your Customer Organization (CKO) have also been addressed through
requisite amendments in the regulations.
Further, a simplified non-trading Investor Account has been introduced for sales/income tax
refund bonds, IPO facilitation account and mandatory induction of private/public unlisted
company shares in the CDS.
10. Measures to improve liquidity
In order to enhance trading capacity of market participants and improve liquidity, the SECP
has approved amendments in the NCCPL Regulations for discontinuing 10 percent
additional margins being collected from brokers and 10 percent additional haircuts being
applied by the NCCPL on margin eligible securities. Furthermore, slabs of liquidity margins
have been revised which would now be applicable only on large exposures of brokers. In
addition, the security deposit requirements have been reduced and the pool of eligible
collateral against margin requirements has also been increased.

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11. Deliverable Futures Market (DFM) segment

Various measures were taken to enhance activity in the DFM segment such as permitting
release of 50 percent MtM profit in Deliverable Futures Contract (DFC) market on T+l basis
and inclusion of closeout mechanism for managing risk. Further, the PSX Regulations were
approved for Blank Selling in DFM to address practical difficulties being faced by the
market participants.
12. Ease of doing business
Following measures have been taken to enhance ease of doing business: -
Reporting mechanism in the Deliverable Futures segment has been improved to resolve
practical issues of market participants.
Simplification in the listing requirements and reduced documentation
Inclusion of more financial institutions as clearing members in the NCCPL
Increase in the pool of eligible collateral for risk management by the NCCPL
Improved disclosure requirements specially for related party transactions
Removal of requirement to place quarterly financial statements on website by brokers
Requirement to submit specific pledge authority to the bank in the case of each pledge
transaction has been relaxed upon request of market participants and replaced with one-
time pledge authorization and submission of declaration by the broker to the respective
pledge on a fortnightly basis.
Requirements for opening of branches by securities brokers have been rationalized.
13. Development of primary capital market
Following measures have been taken for development of primary capital market
Introduction of Growth Enterprise Market at the PSX for facilitating companies that do
not meet the prescribed criteria for regular listing at the PSX but are aspiring to raise
funds through capital markets.
Amendment in the Public Offering Regulations, 2017 to simplify the process and
promote capital formation.
Implementation of the second phase of Centralized e-IPO system whereby the TREC
holders/ Brokers would be allowed to submit application on the behalf of their clients in
an IPO.
Notification of Rating and Investment Information Inc., Japan, as an internationally
recognized foreign credit rating institution, under regulation 4(g) of the Credit Rating
Companies Regulations, 2016 for the purpose of entering into joint venture or technical
collaboration arrangement with any credit rating company in Pakistan.
For bringing ease in doing business, following steps have been taken:
− Processing timelines have been improved and the PSX is now required to process
approval within 10 working days for publicly placed debt backed by GOP’s debt
servicing guarantee and within 15 working days for listing of equity securities and

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publicly placed debt securities not guaranteed by GOP.

− Abolishing the requirement of Information Memorandum in case of listing of
privately placed debt security with instrument rating of A and above and for debt
backed by debt servicing guarantee from GOP;
− Additionally, no credit rating shall be required for debt listing backed by debt
servicing guarantee from GOP.
− Relaxing the requirement of audited accounts to be included in the prospectus from
older than 6-months to 8-months.
Conclusion:
During FY2020, the capital markets witnessed wide fluctuations. In the stock market, the
KSE-100 index reached the year’s highest point in January, plunged in February and March,
but surged again in April. The debt market witnessed an outflow after the COVID-19
pandemic hit the world. Globally, the demand is slowing down and the world economy is
entering recession. Pakistan’s stock market has so far shown resilience to global shocks.
Stability on the macroeconomic front is crucial for capital markets. An environment of low
and stable inflation, moderate external borrowing needs, and sustainable fiscal management
all contribute to lowering the cost of capital market finance. These factors also facilitate
steady growth and reduce uncertainty, which encourages investment and demand for
external finance.
The government is gradually easing the lockdown to invigorate the economy. However,
much will depend on the epidemiological data. If the cases of COVID-19 rise exponentially,
capital markets may face a challenging time.

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