The Pakistan Stock Exchange (PSX) announced on Tuesday that two brokerage firms have made the transition to become Trading-Only Securities Brokers. This development comes as part of a broader shift within the industry, with approximately 52 PSX brokers making similar transitions under the new broker regime introduced by the Securities and Exchange Commission of Pakistan (SECP).
Under this new regime, stockbrokers have been categorized into three segments to facilitate smaller players in transitioning their clearing, settlement, and custody functions to EClear Services Ltd. EClear Services Ltd is the country’s first professional clearing member (PCM) entity, established by the Central Depository Company (CDC).
In the context of the stock market, the clearing function is crucial for trade settlement. A clearing member’s role involves matching buy and sell orders, transferring funds to the seller, and transferring shares to the buyer.
Brokers in the first category are permitted to engage in trading and clearing while retaining custody of shares. They can also offer clearing and custodial services to other brokers. Members in the second category are allowed to engage in trading and self-clearing while maintaining custody of shares. However, they are not authorized to provide these services to other stockbrokers.
The third category, which has been gaining popularity, includes small brokers with a trading-only mandate. This means they have no clearing and custody rights, even for their own accounts.
The PSX noted that the two brokerage firms that have transitioned to the trading-only category will utilize EClear Services as their professional clearing member to settle executed trades and safeguard securities and funds across all accounts, including proprietary ones.
In an earlier interview, a representative of EClear Services highlighted its mission to prevent financially weak brokers from holding clients’ assetssomething that all stockbrokers practiced until two years ago.
Having a professional clearing member in place offers investors the assurance of a seamless transition to another broker in case of defaults or other issues with their existing broker. This move enhances transparency and safeguards investor interests within the stock market.