KARACHI: The State Bank of Pakistan (SBP) has revised the rules governing the appointment of primary dealers for the government’s debt securities. This was announced by Governer SBP Dr Reza Baqir at the Pakistan Stock Exchange (PSX) during a gong ceremony to mark the cooperation between SBP and PSX on multiple initiatives.
SBP and PSX have recently been working closely to improve and widen the access of capital market participants to government debt securities; facilitate investments by non-residents in the stock exchange; remove bottlenecks hindering companies from leveraging against shares of their group companies, and develop information-sharing arrangements between banks and capital markets.
Speaking on the occasion, Dr Reza Baqir said he was pleased to visit PSX for the ceremony as it marked the commitment of SBP and PSX to work together to deepen debt and capital markets in Pakistan, and improve financial intermediation. He made three important announcements in this regard.
First, he said that SBP has revised the rules governing the appointment of primary dealers for the government’s debt securities. This will expand the list of institutions eligible to work as primary dealers, including security depositories and clearing institutions. This measure is aimed at widening the investor base of government securities, improving liquidity, enhancing transparency, and promoting market development.
In addition, SBP has relaxed the selection and performance criteria for development finance institutions (DFIs), investment banks, and brokerage houses to encourage them to become part of the primary dealer system, which is currently dominated by banks. Hence, among other privileges offered to primary dealers, a larger and more diverse group of institutions will now have direct access to primary auctions.
He said that while the government debt market in Pakistan is well-developed and liquid, participation of capital market clients has historically been limited and SBP wants to encourage wider ownership of government securities among retail investors. The governor noted that the revised primary dealer rules will cater to the needs of a diverse group of investors, including capital market clients, corporates, and individuals, and will attract a new clientele to the government securities market. Dr Baqir shared that this measure has been taken after detailed discussions with stakeholders and a comprehensive review of international best practices.
Second, SBP has made changes in its prudential regulations to facilitate the sponsors, shareholders, and companies in raising more financing against the security of shares of their group companies. Dr Baqir highlighted that this amendment will help sponsors and companies in raising liquidity for further investment in new business opportunities and ventures, in turn leading to greater economic activity. This regulatory change would also benefit the capital markets by encouraging sponsors of companies to consider listing on the stock exchanges. As a result, it will also promote documentation of the economy, transparency, and good corporate governance practices.
Third, Dr Baqir apprised the audience that SBP and PSX are jointly working on expanding the scope of KYC (Know Your Customer) information-sharing arrangements between banks and the Central Depository Company of Pakistan (CDC) or National Clearing Company of Pakistan Limited (NCCPL) for existing bank account holders.
He was delighted to reveal that tangible progress has been made and was hopeful that this important initiative will be successfully rolled out by the end of the next month. He further added that such arrangements will facilitate capital market players in mobilizing domestic resources and channeling them effectively to productive uses.
