On Tuesday, the Pakistan Stock Exchange (PSX) communicated to investors that two brokerage firms have undergone a transformation into the category of Trading-Only Securities Broker.
Progressive Securities Ltd and CMA Securities Ltd have successfully transitioned to this new category, following the pattern set by approximately 52 PSX brokers as part of the new broker framework initiated by the Securities and Exchange Commission of Pakistan (SECP).
Under the revised scheme, stockbrokers have been categorized into three distinct segments, designed to facilitate smaller entities in transferring their clearing, settlement, and custody functions to EClear Services Ltd.
This professional clearing member (PCM) entity is the first of its kind in the country and has been established by the Central Depository Company (CDC). The clearing function within a stock market pertains to the settlement of trades. A clearing member is responsible for matching buy and sell orders, transferring funds to the seller, and transferring shares to the buyer.
Brokers within the first category are permitted to engage in trading and clearing activities while retaining custody of shares. They also possess the authority to offer clearing and custodial services to other brokers.
The second category of members can participate in trading, self-clearing, and maintaining custody of shares. However, they are prohibited from providing these services to other stockbrokers.
The third and increasingly prevalent category involves small brokers with a sole focus on trading. In other words, they lack clearing and custody privileges, even for their own operations. The PSX revealed that the two most recent brokers to adopt the trading-only classification would collaborate with EClear Services as their professional clearing member. This arrangement entails settling executed trades and overseeing custody of securities and funds across all accounts, including proprietary ones.
A representative from EClear Services has clarified that their primary objective was to safeguard clients’ assets by preventing financially vulnerable brokers from retaining them—a practice that all stockbrokers were engaged in until two years ago. Essentially, the presence of a professional clearing member allows investors to swiftly transition to another broker in the event of their existing broker defaulting or attempting to evade responsibilities.
