SECP introduces “Online Only Brokers” concept to expand market outreach

In light of its vision to expand market outreach and promote digitalization of financial services, the Securities and Exchange Commission of Pakistan (SECP) has introduced the concept of Online Only Brokers.

The new class of Online Only brokers aims to encourage new participants to commence brokerage business with minimal preliminary infrastructure and operational costs by using electronic means only. Under the new regime, the account opening process will be conducted online as per the digital onboarding framework approved by the SECP and the Online Only brokers will be able to provide trading services to its customers, exclusively through online modes.

This regime is in line with international best practices to offer a complete digital experience to investors who will have the convenience to trade in the stock market and make investments and divestments decisions without having to physically visit a brokerage office or branch.

The online-only broker shall maintain a minimum Net worth of PKR 7.5 million. File photo

An Online Only Broker shall be eligible to operate as a Single Member Company with minimum net worth requirement of PKR 7.5 million only. To facilitate new entrants, the SECP has proposed rationalized license issuance and renewal fees at PKR 50,000 and PKR 25,000 respectively. Pakistan Stock Exchange shall also issue the Trading Right Entitlement Certificate to Online-only brokers at significantly reduced rates along with minimal documentation requirements. Moreover, existing brokers may also switch to this new category to lower their overhead costs and to remain focused on the core business of trading.

The Online Only Broker will operate as a sub-category of Trading Only (TO) Brokers – a class of brokers authorized to conduct trading only and the Professional Clearing Member or Trading and Clearing Brokers execute the trades and also keep custody of securities or money owned by the customers of TO Brokers. In a bid to curb any conflict of interest, the Online Only Brokers shall not be allowed to undertake proprietary trading, however, they may provide securities advisory services to their customers subject to compliance with the requirements of Securities and Futures Advisers (Licensing and Operations) Regulations, 2017.

The proposal of Online Only Broker, coupled with the recently introduced concept of Account Facilitation/Customer Help Centres, are aimed to enhance commercial viability of brokers, robust growth of the capital market and to enable trading in stock market at relatively lower costs for investors and brokers alike. The concept paper regarding Online Only Brokers along with relevant amendments in the Securities Brokers (Licensing and Operations) Regulations, 2016 and Public Offering (Regulated Securities Activities Licensing) Regulations, 2017 are available at SECP’s website for public comments.

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