KARACHI: Stockbrokers have asked the regulator to do away with the investors’ eligibility criteria for trading on the newly launched Growth Enterprise Market (GEM) board.

In a recent letter to Pakistan Stock Exchange (PSX) CEO Farrukh H. Khan, the representative body of stockbrokers said there should be “no disparity between ready and GEM boards” to enable hassle-free trading.

GEM is a newly launched counter reserved for “growth companies” carrying higher investment and liquidity risks than mature companies listed on the main board. Only institutions or accredited individual investors with net assets of at least Rs5 million can buy and sell stocks on the GEM counter. Trading on GEM began on Nov 26. Two listings have so far taken place on the new counter.

“How can a broker be [held] financially responsible for misdeclaration by its customers?” said the letter by the Pakistan Stockbrokers Association.

Wonder why a broker should face penalty if an investor is taking a risk

According to the notified rules, the PSX mandates relevant broker to obtain a “self-declaration” from an investor if it places a bid for a GEM-listed company without being already marked as an accredited individual. Furthermore, the rules say the broker must honour such a transaction from its own account by rectifying the underlying trade.

“Why should a broker be penalised if the investor is taking the risk?” it said, noting that the regulator should eliminate the requirement of Rs5m net assets because “disclaimers have been given by both the regulators [PSX and the Securities and Exchange Commission of Pakistan] to invest at own risk”.

The association said the regulators have not offered an exact definition of net assets. In addition, they’ve not given any cut-off date for assessing the net assets of clients, it said. “There’s no reliable document to ascertain their net assets except wealth statement... which is also prepared by the individual itself,” it stated, adding that obtaining a declaration is a “very time-consuming exercise” requiring constant follow-ups.

Speaking to Dawn, Arif Habib Ltd CEO Shahid Ali Habib said the eligibility criteria mean only 25 per cent of roughly 250,000 stock investors are able to trade shares on the GEM counter.

Published in Dawn, December 10th, 2021