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ACT NO. XV OF 2012

STOCK EXCHANGES (CORPORATISATION, DEMUTUALIZATION AND INTEGRATION) 

ACT, 2012

An Act to provide for the corporatisation, demutualization and integration of stock exchanges in Pakistan

[Gazette of Pakistan, Extraordinary, Part-I, 9th May, 2012]

No. F. 22 (23)/2008-Legis.—The following Act of Majlis-e-Shoora (Parliament) received the assent of the President on the 7th May, 2012 and is hereby published for general information:—

WHEREAS, it is expedient, for the development of the capital markets of the country, to provide for the corporatisation and demutualization of the stock exchanges in Pakistan and to facilitate the integration of these stock exchanges and formatters ancillary thereto;

It is hereby enacted as follows:

CHAPTER-I

PRELIMINARY

1.       Short title, extent and commencement.—(1) This Act may be called the Stock Exchanges (Corporatisation, Demutualization and Integration) Act, 2012.

(2)     It extends to the whole of Pakistan.

(3)     It shall come into force at once.

2.       Definitions.—(1) In this Act, unless there is anything repugnant in the context or subject,—

(i)      "assets" means all immovable and movable properties (whether actual or contingent, tangible or intangible) and include all land, building, machinery and equipment, shares, securities, deposits, cash, bank balances, profits, dividends, fees, commissions, receivables, claims, contracts, licenses, privileges, reserve funds, investments and all other rights and interests in and arising out of such property in the ownership, possession, power or control of a stock exchange at any given time;

(ii)     "blocked account" means a CDC account established by a stock exchange in accordance with clause (c) of sub-section (1) of Section 5;

(iii)    "CDC" means the Central Depository Company established in pursuance of the Central Depository Companies (Establishment and Regulation) Rules, 1996;

(iv)    "Commission" means the Securities and Exchange Commission of Pakistan established under the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997);

(v)     "Committee" means the demutualization committee of members of the stock exchange ratified under Section 3 by the members of the stock exchange;

(vi)    "Companies Ordinance" means the Companies Ordinance. 1984 (XLVII of 1984);

(vii)   "Connected Person" means in relation to a natural person, a spouse, real, step or half sibling, lineal ascendant or descendant of such person, a partner, promoter or substantial shareholder of an undertaking, company or body corporate of which such person is also a partner, promoter or substantial shareholder or an undertaking, company or body corporate in which such person is a partner, promoter, substantial shareholder or director; in relation to a legal person a Connected person means an undertaking, company or body corporate which is a holding, subsidiary or associated company of such legal person;

(viii)  "corporatisation" means the conversion of a stock exchange from a company limited by guarantee to a public company limited by shares;

(ix)    "date of corporatisation" means the date on which the Registrar issues a certificate of re-registration to the stock exchange as evidence of its change in status from a company limited by guarantee to a public company limited by shares;

(x)     "date of demutualization" means the date on which the Registrar issues a certificate of re-registration to the stock exchange in accordance with the provisions of Section 6;

(xi)    "demutualization" means the segregation of the majority ownership of a stock exchange from the right to trade on such stock exchange;

(xii)   "financial institution" includes foreign or local commercial banks development financial institutions, non-banking finance companies, insurance companies, stock exchanges, commodity exchanges, derivative exchanges or any such other entity which has been notified by the Commission as a financial institution for the purposes of this Act;

(xiii)  "first directors" mean directors of the stock exchange nominated by a stock exchange or the Commission as the case may be and who take the office of director on the date of corporatisation and hold such office until elections of the directors are held in accordance with this Act;

(xiv)  "initial shareholders" means the legal owners of the shares of a stock exchange on the date of corporatisation;

(xv)   "integration" means the merger of two or more stock exchanges;

(xvi)  "liabilities" means all borrowings, financial obligations, debts, claims, or potential losses of every description (whether actual or contingent) of a stock exchange at any given date;

(xvii) "member" means a member of a stock exchange prior to its corporatisation under this Act;

(xviii)          "prescribe or prescribed" means prescribed by the regulations made by the Commission;

(xix)  "scheme of integration" means a scheme of arrangement for the integration of two or more stock exchanges;

(xx)   "Securities Ordinance" means the Securities and Exchange Ordinance, 1969 (XVII of 1969);

(xxi)  "security" means a security as defined in clause (1) of sub-section (1) of Section 2 of the Securities Ordinance;

(xxii) "shareholders" means the legal owners of the shares of a stock exchange at any given time and include the initial shareholders;

(xxiii)          "stakeholders" means the employees of the stock exchange, the TRE certificate holders, the issuers of securities listed on a stock exchange, creditors, if any, of such stock exchange and the Government of Pakistan;

(xxiv)          "stock exchange" means a stock exchange registered under Section 5 of the Securities Ordinance at the time of commencement of this Act and includes a stock exchange after corporatisation, demutualization or integration as the case may be;

(xxv) "strategic investor" means a stock exchange, depository company, a derivative exchange or a clearing house which has been approved by the Commission in accordance with the prescribed criteria, for the purposes of acquiring shares of a stock exchange in pursuance of Section 12;

(xxvi)          "substantial shareholder" means a person who directly or indirectly controls, beneficially owns or holds not less than twenty per cent of the voting rights of an undertaking, company or body corporate;

(xxvii) "trading right entitlement certificate or TRE certificate" means a certificate issued by a stock exchange evidencing right of the TRE certificate holder to apply for registration as a broker in accordance with the Broker and Agent Registration Rules, 2001 as amended from time to time;

(xxviii) "trading right entitlement certificate holder or TRE certificate holder" means a person who is issued a TRE certificate under Section 5, or purchases or acquires such TRE certificate under Section 16 or is issued afresh TRE certificate in accordance with the provisions of this Act; and

(xxix)          "undertaking" means any trade or business of a stock exchange.

(2)  The words and expressions used, but not defined in this Act, but which are defined in the Companies Ordinance or the Securities Ordinance shall have the same meaning as are assigned to them in these Ordinances.

CHAPTER-II

CORPORATISATION

3.       Demutualization Committee.—(1) The members of a stock exchange shall not later than thirty clays from the commencement of this Act, in a meeting of the stock exchange, ratify the creation and constitution of the demutualization committee existing at such commencement.

(2)     The committee shall be fully authorized to—

(a)     approve the valuation of the stock exchange to be undertaken by the investment bank pursuant to clause (a), sub-section (I) of Section 4;

(b)     enter into negotiations and finalize the sale of not more than forty per cent of the total issued share capital out of the shares lying in the blocked account with anyone or more strategic investors or financial institutions;

(c)     determine the offer price for offer for sale of shares to general public.

(3)     The committee shall be fully empowered and bound to accept any price offered for the sale of shares by the strategic investor that is equal to or greater than the valuation carried out under Section 4, and finalize and enter into an agreement for the sale of such shares to the strategic investor, and the members, the shareholders including the initial shareholders and the stock exchange shall be bound by such agreement:

Provided that the decision whether to accept or reject an offer from a strategic investor, if the price offered is less than the approved valuation, shall be made in a meeting of the initial shareholders of the stock exchange through a majority vote, unless the members while constituting the committee, gave such authority to the committee.

4.       Submission of information by the stock exchange.—(1) Within forty-five days of the commencement of this Act, each stock exchange shall, submit to the Commission the following, namely:—

(a)     a valuation of the stock exchange approved by the committee as at any date that may be specified by the Commission, based on the discounted cash flow or net asset value of the stock exchange, or any other internationally accepted method of valuation undertaken by a renowned international investment bank approved by the Commission:

          Provided that the Commission may, on a reasoned request made by the stock exchange, extend the time for the submission of the valuation of the stock exchange till 120 days from the commencement of this Act;

(b)     a re-valuation of the assets and liabilities of the stock exchange as at 30th June, 2008, or as at any other date as may be specified by the Commission, undertaken by a firm of Chartered Accountants approved by the Commission in accordance with the prescribed criteria based on which valuation, the number of shares of ten rupees par value proposed to be issued will be determined;

(c)     the proposed authorized and paid-up capital of the stock exchange with the number of shares to be issued;

(d)     the names of members of the stock exchange proposed to be the initial shareholders of the stock exchange and the number and value of shares to be allotted to each such member:

          Provided that the shares allotted in pursuance of this sub-section shall be allotted for consideration other than cash.

(e)     the names of members of the stock exchange, nominated to act as the first directors of the stock exchange until such time as elections are held in accordance with this Act:

          Provided that the stock exchange shall nominate only four members to act as the first directors;

(f)      the proposed plan for the segregation of the commercial and regulatory functions of the stock exchange;

(g)     the draft memorandum and articles of association of the stock exchange;

(h)     a detailed five year development plan for the stock exchange together with the capital expenditure estimate and the sources of finance:

          Provided that the items listed at clauses (b) to (h) of sub-section (1) shall be submitted to the Commission after being duly approved by the Board of Directors of the stock exchange.

(2)  Within thirty days of receipt of the information submitted by a stock exchange under sub-section (1), the Commission shall, subject to the provisions of sub-section (4), approve and communicate to the stock exchange the following namely:—

(a)     the revaluation of the assets and liabilities of the stock exchange;

(b)     the authorized and the paid up capital of the stock exchange;

(c)     the names of members of the stock exchange proposed to be the initial shareholders of the stock exchange;

(d)     the number of shares that may be allotted to each member of the stock exchange for consideration other than cash;

(e)     the names of members nominated to act as first directors of the stock exchange;

(f)      the plan for the segregation of the commercial and regulatory functions of the stock exchange;

(g)     the memorandum and articles of association of the stock exchange; and

(h)     the approved development plan.

(3)     At the time of communicating the items listed in sub-section (2), the Commission shall also communicate to the stock exchange the names of six persons to be nominated by the Commission to act as the first directors of the stock exchange with a direction to elect one of these persons as the Chairman of the Board of Directors of the stock exchange.

(4)     The Commission may, if it deems necessary in the interest of the capital markets, make appropriate amendments in any of the matters mentioned in sub-section (2), other than the re-valuation carried out by the firm of Chartered Accountants, before granting its approval:

Provided that before making any substantive amendments, the Commission shall inform the stock exchange of such amendments, and if so required by the stock exchange in writing, provide an opportunity of hearing to the stock exchange:

Provided further that any decision of the Commission under this sub-section (4) shall be final and binding.

(5)     The valuation of the stock exchange as mentioned in clause (a) of sub-section (1), shall be provided to the Commission in a sealed envelop and the Commission shall keep the envelop sealed till the sale of shares to a strategic investor, in which case it shall return the sealed envelop to the stock exchange. In case there is no sale of shares to a strategic investor in the manner provided in this Act, the Commission shall open the envelop in accordance with provisions of Section 12.

(6)     If a stock exchange fails to comply with any or all of the requirements of sub-section (1) within the stipulated time or any extension thereof, the Commission shall undertake or decide as the case may be, the matters listed in sub-section (1) and communicate the same to the stock exchange for further compliance. Any action taken by the Commission in pursuance of this sub-section shall be final and binding on the stock exchange and its members:

Provided that it the Commission engages a renowned international investment bank for the purposes of clause (a) of sub-section (1) or a firm of Chartered Accountants for the purposes of clause (b) of sub-section (1), the cost of such valuation, including all ancillary costs, shall be borne by the stock exchange being valued.

5.  Procedure upon receiving approval or determination.—(1) Within thirty days of being granted approval under sub-section (2) of Section 4 or a determination under sub-section (6) of Section 4, the stock exchange shall—

(a)     adopt in a meeting of its members by a special resolution the approved memorandum and articles of association;

(b)     allot shares to the members approved to be the initial shareholders in the approved numbers:

          Provided that all shares will be allotted in a dematerialized format and shall not, at any time or for any reason, be convertible into physical format;

(c)     deposit in a blocked account sixty per cent of shares allotted to each initial shareholder and hold these in the blocked account until such time as these shares are disposed of in accordance with Section 12;

(d)     issue a certificate to each initial shareholder certifying the number of his shares held in the blocked account; and

(e)     issue a TRE certificate to each initial shareholder.

(2)     Willful failure of a stock exchange to comply with any of the requirements of this section shall be an offence under this Act.

(3)     Within seven days of the adoption of the memorandum and articles of association as aforesaid, the stock exchange shall deliver to the Registrar.—

(a)     a certified copy of the special resolution by which the memorandum and articles of association have been adopted;

(b)     a certificate from the auditors of the stock exchange certifying that all shares have been allotted to the initial shareholders in a dematerialized format; and

(c)     a certificate from CDC that sixty per cent of the shares allotted to each initial shareholder have been deposited in a blocked account in accordance with clause (c) of sub-section (1) of Section 5.

6.       Procedure upon receiving memorandum of the stock exchange.—(1) Within seven days of receipt of the information mentioned in sub-section (3) of Section 5 and after confirmation from the Commission, the Registrar shall issue a certificate of re-registration to the stock exchange as evidence of its change in status from a company limited by guarantee to a public company limited by shares.

(2)  The directors of the stock exchange holding office on the date of corporatisation shall automatically cease to hold such office on receipt of the certificate of re-registration by the stock exchange, and shall stand replaced by the first directors.

7.       Effect of Corporatisation.—(1) All assets and liabilities of the stock exchange as at the date of corporatisation shall remain the assets and liabilities of the stock exchange.

(2)  The corporatisation of the stock exchange shall not—

(a)     create a new legal entity or prejudice or affect its identity or continuity;

(b)     adversely affect the registration of the stock exchange under Section 5 of the Securities Ordinance;

(c)     prejudice or affect the continuity of its undertakings;

(d)     render defective or affect any legal, disciplinary or other proceedings brought by or against it prior to the date of corporatisation;

(e)     affect the validity of any regulation made by the stock exchange or the Commission in pursuance of Section 34 of the Securities Ordinance;

(f)      affect any instruction, order, approval, notification, direction, act, requirement, condition, consent, guideline, circular, undertaking, declaration, indemnity, waiver, exemption, restriction or decision or other document howsoever called, made, given or done by the stock exchange or the Commission in accordance with or in pursuance of the Companies Ordinance or the Securities Ordinance or any other law or rules and regulations made under such law in force at the date of corporatisation, and such instruction, order, approval, notification, direction, act, requirement, condition, consent, guideline, circular, undertaking, declaration, indemnity, waiver, exemption, restriction or decision or other document shall remain valid, binding and have effect in relation to the persons to whom such instruction, order, approval, notification, direction, act, requirement, condition, consent, guideline, circular, undertaking, declaration, indemnity, waiver, exemption, restriction or decision is applied until it is amended, repealed or otherwise expires;

(g)     affect any right, privilege, obligation or liability acquired by or accrued to the stock exchange under the provisions of the Companies Ordinance or the Securities Ordinance or any other law or rules and regulations made under any such law in force at the date of corporatisation and shall not affect any legal, disciplinary or other proceedings, remedy, inspection, investigation or inquiry in relation to such right, privilege, obligation or liability and any such legal, disciplinary or other proceedings, remedy, inspection, investigation or inquiry may be instituted, continued or enforced after the date of corporatisation; and

(h)     affect any action that has been taken by the stock exchange for any breach of its regulations.

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