Pakistan Stock Exchange (PSX) has introduced “online only broker” category by inviting all entrepreneurs including start-ups and fintechs to apply for low-cost trading rights and licensing.

The settlement of trades through the online only broker will be done by an e-clearing company as the new stockbroker category will end physical interaction.

In a notification on Wednesday, the PSX said online only broker (being a sub-category of trading) had been introduced as a digital platform for entrepreneurs.

Under this category, customer onboarding process and broker’s trading services will be provided only through online channels. Furthermore, “lower financial resource requirements and entry costs make it an ideal choice for those looking for a cost-effective way to offer brokerage services.”

“PSX is committed to supporting innovation in the securities market in view of the growing demand for digital/ online investing platforms,” the bourse said.

It added that the online only broker licence entailed low financial requirements and operational costs with no need for a physical office. With this licence, the broker can execute trades in ready or future markets only through electronic means providing customer onboarding, trade execution and support services with minimal overheads.

“Whether you are digitally savvy or have a financial background, providing brokerage service has never been more simplified than this.”

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PSX clarified that online only broker would not be allowed to do proprietary trading, meaning they could not trade their own shares.

It is a must for online traders to maintain adequate system infrastructure including a functional website, internal control procedures and technology to facilitate internet-based trading services (IBTS) in an effective, efficient and robust manner, the PSX said. Licence may be acquired on payment of a fee of Rs50,000 to the Securities and Exchange Commission of Pakistan (SECP). They will also need to pay annual renewal fee of Rs25,000.

Online brokers are required to maintain a minimum net worth of Rs7.5 million. Their base minimum capital (BMC) requirement is Rs1 million (to be deposited at the PSX and maintained at all times).

Some conventional stockbrokers, however, have expressed their resentment over the introduction of online traders, claiming it is a violation of the Demutualisation Act 2012 and their high-net-worth clients like mutual funds and financial institutions, who were big investors at the PSX, may open their own trading companies.

Citing a comparison, they said that a conventional broker got trading rights for Rs2.5 million compared to the online only broker that would get rights for only Rs50,000. They pointed out that though new traders could not trade their own shares, they could execute trades for their sponsors like company owners.

Besides, the PSX has introduced a WhatsApp service to make available a host of information including market report, summary, daily quotations and announcements.

Published in The Express Tribune, November 9th, 2023.

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