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Department of Commerce

BS Final Year

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Submitted to:

Maam Sadia

Submitted by:

Neelofar Saeed

Subject

Financial Institution

Submitted on:

August 18, 2010

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`

First of all I would like to thank Almighty

Allah who gave me strength to complete my

assignment on Securities and exchange

Commission of Pakistan, then I greatly

thankful for the efforts of my honorableteacher Maam Sadia who give us this

opportunity to present myself in front of her

as well as class mates. Without her feedback

and guidance, this report would never been

completed. She help me to stay motivated and

on schedule. She dealt with all of my day-to-

day problems and questions.

I wish to thank all my class mates who

graciously support me for making this report.

This report helped to accelerate my

understandings of financial institutions and

now I can utilize a unique learning

experience in my career.

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Introduction

The Securities and Exchange Commission of Pakistan (SECP) is the top regulatory

body in the country to regulate the corporate sector and the capital market with the aim

to ensure clearness and efficiency in the functioning of its financial markets. One ofthe main functions of SECP is to include companies under the companies ordinance,

1984 (the Ordinance). The SECP work is around the registration of the companies.

Means it deals with all the companies registered under the Companies Ordinance, but

not with the Banking Companies. Its strategy is to develop an efficient and dynamicregulatory body that fosters principles of good governance in the corporate sector,

ensures proper risk management procedures in the capital market, and protects

investors through responsive policy measures and effective enforcement practices.

Mission Statement

"To promote an efficient and transparent capital market, develop the corporate sector

and protect the investor through responsive policy measures, effective regulation and

enforcement of best governance practices."

Vision Statement

"To install and sustain a dynamic, modern and proactive regulatory body that provides

impetus for the development of a fair, efficient and transparent capital market and a

robust corporate sector."

History of SECP

The Securities and Exchange Commission of Pakistan (SECP) was set up in pursuance

of the Securities and Exchange Commission of Pakistan Act, 1997 under the Capital

Market Development Plan of the Asian Development Bank (ADB). This Act

institutionalized certain policy decisions relating to the constitution and structure,powers, and functions of the SECP, thereby giving it administrative authority and

financial independence in carrying out its regulatory and statutory responsibilities. The

SECP became operational in January 1999 and has come a long way since then. It wasinitially concerned with the regulation of corporate sector and capital market. Over

time, its mandate has expanded to include supervision and regulation of insurance

companies, non-banking finance companies and private pensions. The SECP has alsobeen entrusted with oversight of various external service providers to the corporate and

financial sectors, including chartered accountants, credit rating agencies, corporate

secretaries, brokers, surveyors etc. The challenge for the SECP has improved multiplewith its increased mandate.

Functions of SECP

http://en.wikipedia.org/wiki/Asian_Development_Bankhttp://en.wikipedia.org/wiki/Asian_Development_Bank

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The Commission Secretariat is headed by MR. ABDUL REHMAN QURESHI,Secretary. It coordinates the overall functioning of the SECP and liaises with external

entities, including government agencies and multilateral and internationalorganizations. In addition, it supervises the internal monitoring function within the

SECP and is responsible for the management of donor-funded projects. Director heads

these functions.

The internal audit function is headed by the Director. Administratively, the internalaudit is a part of the Chairman Secretariat.

Organizations and their functions

SECP includes different organizations namely division and divide them into differentcategories such as:

Company law division

It is responsible for monitoring and enforcing observance of listed companies (except

insurance companies, non-banking finance companies and modarabas) with relevant

laws and applicable accounting standards through review of published accounts,inquiry, and examination. Its objective is to improve regulatory compliance for

creating a healthy corporate culture and promote good corporate governance that

ensures clearness thereby protecting the stakeholders rights and strengtheninginvestors confidence.

Securities market division

It is responsible for the regulation of all aspects of the securities market including

licensing and coordination, regulation of secondary market, public offerings, market

intermediaries and market surveillance. Its objective is to provide for the protection ofinvestors, regulation of markets and dealings in securities.

Specialized companies division

The SCD strives to provide a regulatory environment which is conducive for

development and promotion of a robust Non-Bank Financial (NBF) Sector. The major

functions performed by SCD for the NBF Sector include: licensing, registration,regulation, on-site inspection, off-site surveillance and enforcement. The underlying

objective is to safeguard the interest of the stakeholders while at the same time

facilitate diversification and innovation in products and services of NBF sector.

Insurance division

It is responsible for supervision and development of insurance sector, including lifeand non-life insurance companies, takaful operators, insurance intermediaries and

mailto:hayat.jasra@secp.gov.pkmailto:hayat.jasra@secp.gov.pkmailto:hayat.jasra@secp.gov.pk

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bodies connected with insurance like Insurance Association of Pakistan, Pakistan

Insurance Institute and Pakistan Society of Actuaries. Its their aim to ensure

protection of the interests of insurance policyholders and to promote sounddevelopment of the insurance industry.

Law division

Law Division has been given the mandate for ensuring risk management of the affairs

of SECP. Its objective is the Law Division ensures that all legal services are performed

with the highest integrity and in accordance with the finest ethical standards of thelegal profession for achieving the statutory mandate of SECP.

Role of SECP

As the regulator of an emerging market the SECPs regulatory philosophy is based onthe principle of developmental regulation. SECP, therefore, laid considerable emphasis

on market development while administering and enforcing various corporate and

securities laws. SECPs regulations are based on:

Consultative rule making

Facilitating implementation

Stringent enforcement

Now we will take just an overview of the role, the SECP plays in the capital markets of

Pakistan. We will focus on the recent developments made by the SECP but first wewill discuss the traditional role of the Securities and Exchange Commission of

Pakistan.

1. Regulating the issue of Securities

The Securities and Exchange Commission of Pakistan is the regulatory authority in

Pakistan and responsible for making the various rules regarding the Capital Markets.

2. Regulating the business in Stock Exchange and Other securities

markets

The SECP not only regulate the business of Stock Exchanges but also regulate the

business of other securities markets. For example; the SECP is now specially

promoting the insurance sector and formulating the various rules to protect the policy

holders.

3. Monitoring the Capital Markets

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Through monitoring the capital markets, SECP also gather the information about the

reasons of the fluctuations in the markets, detect the flaws in the policies, identifying

the unfair capital market practices are some examples.

4. Registering

SECP also propose regulations for the registration and regulating the working of

collective investment schemes, including unit trust schemes SECP promotes and

regulates self-regulatory organizations including securities industry and related

organizations such as stock exchanges and associations of mutual funds, leasing

companies and other NBFIs. SECP also regulate substantial acquisition of shares and

the merger and take-over of the companies.

5. Prohibiting Fraudulent and Unfair Trade Practices

The SECP has formulated various rules to protect the investors and companies againstthe fraudulent and unfair trade practices. According to the Section 29(1) of The SECP

Act, 1997, the Commission may conduct the investigations in respect of any matter

that is offence under this Act.

6. Promoting Investors Education and Training

For helping the capital markets of our country the SECP has designed numerous

programs to educate the investors. The basic purpose of these programs is to make the

investors able to understand the nature of capital market. The SECP is also training theintermediaries of the securities markets. This will leads to the better understanding

between the SECP policies, investors, and the Capital Market.

7. Calling for Information and Undertaking Inspection

The SECP can also call for the information and undertake the inspections, conductinquiries and audits of the Stock Exchanges and intermediaries and self-regulatory

organizations in the securities market. By conducting the audit of the Stock Exchanges

the SECP enables itself to get the real position of its capital market and comes to knowthat the either the Stock Exchanges are following the rules or not.

8. Suggesting Reforms of Law

SECP consider and suggest the reforms of law relating to the companies and bodies

corporate, securities markets, including changes to the constitution, rules and

regulations of companies and bodies corporate, Stock Exchanges or clearing houses.

9. Encouraging the Development

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The SECP performed its role as the greatest encourager of the development of the not

only the capital markets but also for the other related markets. SECP has formed a

research wing for identifying the areas of improvement to make those areas better. The

research wing of the SECP can conduct research in any of the matters relating to

markets.

10. Regulating the Insurance Business

The SECP is ensuring and monitoring compliance by insurers, insurance surveyors and

insurance intermediaries of all laws, rules and regulations pertaining to insurance for

the time being in force. SECP is also regulating professional organizations connected

with the insurance business and encouraging the organized development of the

insurance market in Pakistan.

11. Maintaining the Investors confidence

SECP plays an important role in maintaining the confidence of the holders of the

insurance policies by protecting the interests of the policy holders and beneficiaries of

insurance policies in all matters, including assignment of insurance policies,

nominations by policy holders, insurable interest, and surrender value of policies of life

insurance, and other terms and conditions of contracts of insurance.

12. Disclosure of Information to the Public

Its necessary for the companies listed at any stock exchange in Pakistan to issue the

opinion of a qualified auditor along with the financial reports. It is also necessary to

disclose all necessary matters in the financial statements and reports to provide the bestinformation to the public and reducing the chances of fraud.

13. Settlement of Disputes

SECP also performs its role as the authority to resolve the potential disputes between

the parties I.e. investors and companies. SECP is not only solving these matters but

also is trying to improve existing methods and advise new opinions for the expeditious

settlement of claims and disputes between the parties.

Scope of SECP

The SECP is strongly pursuing the process of demutualization and incorporation ofstock exchanges. For this purpose, SECP has prepared a preliminary road map for

demutualization and incorporation, which has been shared with the stock exchange.

Moreover, SECP has engaged the services of legal expert to draft special legislation(Act and accompanying Rules and Regulations) to enable demutualization and

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incorporation of exchanges. Broad discussion on the enabling legislation is in process

and is expected to be finalized shortly.

SECP is keeping a close relationship with stock exchanges to drive the process of

demutualization and possible incorporation. In this regard, soon after the submission of

report by expert committee on demutualization and incorporation, comprising ofinternational and national experts, SECP initiated a consultative process with all thestakeholders. In this regard, it arranged various meeting with all the three stock

exchanges to discuss the modalities and implementation of demutualization and

possible incorporation.