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Metro Matters By Manzar Naqvi 21-11-2023


Metro Matters
Manzar Naqvi

Revolutionizing financial services: Unveiling the ‘Online Only Broker’ model at PSX


Farrukh A. Khan, the Managing Director of the Pakistan Stock Exchange (PSX), and Raeda Latif, Head of Communication at PSX, hosted a breakfast meeting in the boardroom of PSX during the reported week, where they invited seniors from the journalist community for the briefing on “Online Only Broker”. This gathering served as a platform to unveil the groundbreaking nature of the Online Only Broker model, highlighting its adept use of technology to reshape the brokerage landscape. The approach, forward-looking in essence, not only streamlines processes but also introduces a cost-effective method for market participation, marking a significant leap forward in financial services.
During the PSX officials briefing on “Online Only Broker” on Thursday the KEC 100 Index crossed the 57,000 mark in trading activities. Participants and media representatives conveyed their congratulations to Farrukh and Raeda for this accomplishment. In response, the positive market reaction was attributed to the economic policies and reforms implemented by the caretaker government.
Further delving into the discussion on the Online Only Broker model during the briefing, Farrukh Khan emphasized its significance in the swiftly evolving financial markets. Distinguished by their fully digitized platforms, these brokers represent a paradigm shift in the provision of brokerage facilities. By exclusively operating through digital platforms, Online Only Brokers eliminate the need for physical offices, head offices, or branches, contributing to a more focused market approach. Notably, these brokers enjoy an exemption from the statutory audit requirement by an Auditor of category ‘A’ or ‘B,’ as outlined by the State Bank of Pakistan (SBP) Panel of Auditors.

Farrukh underscores the fact that customers engage with Online Only Brokers, exclusively through designated online channels, encompassing various facets such as account initiation, trading activities, and reporting. The trading procedures are executed seamlessly without human involvement, adhering to the stipulations outlined in Chapter 9 of the PSX Rule Book. Additionally, Online Only Brokers possess the flexibility to establish a Customer Facilitation Center (CFC) in accordance with the guidelines set forth in Chapter 22A of the PSX Rule Book. Notably, they are exempted from Clients’ Assets Segregation reporting, a mandatory requirement for other broker categories, both on a fortnightly and annual basis.
As the financial landscape undergoes continuous transformation, the Online Only Broker model emerges as a trailblazing force, epitomizing efficiency, technological prowess, and adaptability. Ongoing reforms and policies contribute to a positive market sentiment, laying the groundwork for a new era in financial services.
MD PSX has outlined the prerequisites for Online Only Brokers, emphasizing the imperative of acquiring a license from the Securities and Exchange Commission of Pakistan (SECP) and obtaining a Trading Right Entitlement Certificate (TRE) from PSX. Furthermore, these brokers are required to designate a Clearing Member, choosing between a PCM and T&C, and are restricted from partaking in proprietary trading activities. The maintenance of a robust system infrastructure is vital for their operational efficiency, encompassing a functional website, internal control procedures, and technology that supports Internet-Based Trading Services (IBTS). Adherence to well-defined procedures for client access to IBTS, covering crucial aspects like trading limits, order placement and execution, trade confirmation reporting, margin requirements, and margin calls, is deemed essential in accordance with Chapter 9 of the PSX Rule Book.
In terms of financial considerations, Online Only Brokers are subject to a one-time PSX Trading Right Entitlement (TRE) Certificate fee of Rs 1.25 million. They are obligated to uphold a minimum net worth of Rs 7.50 million consistently, with a Base Minimum Capital (BMC) of Rs1 million deposited with PSX. The licensing fees for SECP amount to Rs50,000, coupled with an annual renewal fee of Rs25,000. Details regarding trading and IT charges can be found in the Standard Schedule of Charges available on the PSX website.
During discussions with the senior media community, the PSX management underscored that the ongoing Investor Awareness initiatives and the introduction of innovative dimensions in stock market trading, such as Online-Only Brokers, will significantly contribute to bolstering investors’ confidence. This, in turn, is anticipated to stimulate increased trade volumes and foster the continued growth of the capital market.

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