REGISTERED No.

M - 302 L.-7646

The Gazette

of Pakistan

EXTRAORDINARY PUBLISHED BY AUTHORITY

ISLAMABAD, WEDNESDAY, MAY 9, 2012 PART I Acts, Ordinances, President's Orders and Regulations NATIONAL ASSEMBLY SECRETARIAT Islamabad, the 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:ACT No. XV OF 2012 An Act to provide for the corporatisation, demutualization and integration of stock exchanges in Pakistan 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 for matters ancillary thereto; It is hereby enacted as follows: (291) Price : Rs. 20.50 [2521(2012)/Ex. Gaz.)

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CHAPTER-III DEMUTUALIZATION 8. Demutualization. A stock exchange shall stand demutualised when the Registrar has issued a certificate of re-registration to the stock exchange in accordance with section 6. 9. Rights attached to shares in the blocked account. (1) All rights in respect of the sixty per cent shares of each initial shareholder deposited in the blocked account shall vest and be exercised in the following manner, namely:(a) the right to receive dividends, bonus shares, rights shares and the proceeds of sale of these shares shall vest in the initial shareholders: Provided that the bonus shares and right shares if any, shall be added to the blocked shares of the initial shareholder and shall be disposed of alongwith those blocked shares in the manner provided in this Act; (b) the right to sell these shares shall vest in the stock exchange to be exercised in the manner provided in section 12; and the right to exercise the voting power attached to these shares shall remain suspended till the time of sale of these shares in accordance with section 12.

(c)

(2) The blocked account shall be operated by the board of directors in the manner prescribed by the Commission. 10. Board of a stock exchange after demutualization and the election of directors. (1) At any time after the date of demutualization. TRE certificate holders or connected persons of TRE certificate holders shall not hold the majority on the board of directors of any stock exchange or hold more than forty per cent of the total paid up capital of the stock exchange. (2) Within thirty days of the date of demutualization, the stock exchange shall hold an election of directors: Provided that the elections shall only be in respect of the seats held by the first directors nominated by the stock exchange. The nominees of the Commission shall continue to hold office until such time as they stand replaced on a directive of the Commission to allow co-option of nominees of the strategic investor, or in subsequent elections by shareholder interest of the strategic investor and financial institutions or representatives of the general public as the case may be. (3) After the date of demutualization, the chairman of the Board of any stock exchange shall always be from amongst those directors who do not represent the TRE certificate holders or their connected persons. 11. Effect of demutualization. (1) From the date of demutualization, notwithstanding anything to the contrary contained in any other law for the time being in force or

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any agreement award, judgment, decree or other instrument for the time being in force, the demutualization of the stock exchange shall become binding on all persons and authorities having any contractual or statutory, right power obligation or liability in connection with the stock exchange. (2) The demutualization shall not adversely affect the registration of the stock exchange under section 5 of the Securities Ordinance. (3) A shareholder may or may not be a TRE certificate holder of the stock exchange after demutualization. (4) A TRE certificate holder may or may not be a shareholder of the stock exchange after demutualization. 12. Divestment and issue of further shares. (1) The Commission may at any time not later than two years from the date of demutualization direct the stock exchange and its shareholders to do one or more of the following, namely:(a) to enter into an agreement with a strategic investor, within one year of such direction, for the sale of not more than forty percent of its total issued share capital out of the shares lying in the blocked account; to sell to the general public through an offer for sale, not less than twenty percent of its total issued share capital out of the shares lying in the blocked account within one hundred and eighty days of the direction in accordance with applicable laws; to enter into agreements with and to sell to local financial institutions any shares remaining in the blocked account after sale of shares to the strategic investor and the general public, within one year of the direction: Provided that the Commission may extend the period for compliance upon an application by the stock exchange setting out the reasons for not being able to comply with the said order within the specified time. (2) A stock exchange may, by special resolution issue further shares carrying extra voting rights to a strategic investor with the prior written approval of the Commission. (3) In case if no agreement for the sale of shares of the stock exchange is reached with any strategic investor within one year of the direction given by the Commission or within such time as may be extended by the Commission, the Commission may open the sealed envelop containing the valuation of the shares. (4) Upon opening the sealed envelop, the Commission may take such steps or give such directions as may be necessary for achieving the sale of shares including but not limited to(a) ordering the sale of shares to a strategic investor who had earlier made an offer to purchase the shares, if the price offered by such strategic investor was equal to or more than the valuation of the shares contained in the sealed envelop; or

(b)

(c)

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(b)

ordering a fresh auction of the shares and selling to the highest bidding strategic investor or financial institutions such number of shares and in such manner as the Commission may specify; or

(c) ordering a revaluation of the stock exchange at the cost of the stock exchange and in such manner as the Commission may specify. (5) Notwithstanding anything contained in sub-sections (1) to (4), if a stock exchange fails to comply with any or all of the directions given to the stock exchange under subsection (1), the Commission may determine and conclude the matters listed in sub-section (1) in such manner as may be prescribed and any such determination by the Commission shall be final and binding on the stock exchange, its shareholders including the initial shareholders and the CDC. (6) Refusal by any initial shareholder to accept an agreement duly entered in accordance with the provisions of this section 12, or failure by any person to comply with any directions given by the Commission, or the willful failure of the committee to sell the shares if the offer price received for such shares is equal to or more than the approved valuation, shall be an offence. 13. Sale and purchase of shares by a strategic investor and a financial institution. (1) A strategic investor or a financial institution who acquires shares under section 12 may sell its shareholding in a stock exchange only to another strategic investor or a financial institution as the case may be, with the prior written approval of the Commission. (2) A strategic investor may acquire such further shares of a stock exchange in which it is a strategic investor to enable it to increase its shareholding up to fifty one percent of the total paid up capital, subject to the following conditions, namely:(a) the prior approval of the Commission is obtained for such further acquisition of shares; the further acquisition is made not less than three years after it acquires shares under section 12: and the shares are purchased from the market by making a public offer in a transparent manner.

(b)

(c)

(3) No financial institution who has acquired shares under section 12 may acquire any further shares from the general public: Provided that a financial institution may acquire shares from another financial institution with prior approval of the Commission. (4) The Commission may, by order in writing and reasons to be recorded, relax any one or all of the restrictions provided in sub-sections (1) to (3) after four years of date of demutualization. (5) The provisions of the Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Ordinance, 2002 (CIII of 2002) shall not apply to any acquisition of voting shares of a stock exchange by a strategic investor.

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14. Powers of the Commission to require divestment. (1) if an initial shareholder, a member of the general public (including a company) or a TRE certificate holder directly or indirectly acquires more than one percent of the shares of a stock exchange, the Commission may direct such person to divest these shares in a manner as may be specified by the Commission from time to time or on a case to case basis. Explanation. For the purposes of this sub-section a person shall be deemed to have acquired shares indirectly if these shares have been acquired by a connected person of such person. (2) If a financial institution other than a financial institution who acquire shares under section 12, directly or indirectly acquires more than five percent of the shares of a stock exchange, the Commission may direct such financial institution to divest these shares in a manner as may be specified by the Commission from time to time or on a case to case basis. Explanation. For the purposes of sub-section (2) a financial institution would be deemed to have acquired shares indirectly if these shares have been acquired by a connected person of such financial institution. (3) The limits on the holding of shares by persons mentioned in sub-sections (1) and (2) may be amended by the Commission from time to time if deemed necessary. (4) Willful failure to comply with any provisions of this section or any directions issued by the Commission hereunder shall be an offence under this Act. 15. Listing of shares. (1) The shares of a stock exchange shall be listed, on any such stock exchange and within any such time as the Commission may prescribe in consultation with the board of directors of the stock exchange which is to be listed. (2) Where the shares of a stock exchange are listed on itself, the Commission shall act as the front line regulator of such stock exchange for such listing, and notwithstanding anything contained in any other law, shall have the necessary powers and authority to regulate and administer all the laws, rules and regulations prescribed for such matter. (3) The self-listing of the stock exchanges under this section shall be administered and managed by the Commission in such manner as may be prescribed. (4) A stock exchange shall make an application for the listing of its shares on itself in the manner and form and subject to such conditions, as the Commission may prescribe. (5) Upon receipt of an application under sub-section (4), the Commission may if it is satisfied, after making such inquiry and receiving such further information as it may consider necessary, that the application fulfils the prescribed conditions for listing order the listing of the shares. (6) Willful failure of a stock exchange to comply with any prescribed condition or direction of the Commission shall be an offence under this Act. 16. Trading rights. (l) An initial shareholder who is issued a TRE certificate under section 5 shall, if not already registered as a broker with the Commission, be entitled to be

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so registered not later than two years from the date of demutualization provided that he meets the fit and proper criteria: Provided that such TRE certificate holder shall commence business not later than six months from the date of registration as a broker. (2) A TRE certificate issued under section 5, may only be transferred once in a manner as may be prescribed: Provided that transfer of the TRE certificate by a registered broker shall result in the cancellation of his registration as broker. (3) Any fit and proper person who acquires a TRE certificate from an initial shareholder in accordance with sub-section (2) shall get himself registered as a broker not later than six months from the date of acquiring the TRE certificate, and shall commence business not later than twelve months from the date of acquiring the TRE certificate. (4) A stock exchange shall not issue new "TRE certificates to any person until 30th June, 2010 unless two-third majority of 'TRE certificate holders of a stock exchange decide otherwise. (5) After 1st July, 2010 till 31st December, 2019 a stock exchange shall offer for issuance fifteen TRE certificates each year in the manner prescribed by the Commission. (6) After 2019, no restriction shall be placed on the issuance of TRE certificates by the stock exchange and any person who meets the fit and proper criteria for registration as a broker shall be eligible to be issued a TRE certificate. (7) Any person who is issued a new TRE certificate shall get himself registered as a broker not later than six months from the date of issuance of such TRE; certificate and shall commence business not later than three months from the data of registration as broker. (8) After the date of demutualization, only a private company or a public company as defined In the Companies Ordinance, 1984 (XLVII of 1984) shall be eligible, to obtain registration as a broker on a stock exchange: Provided that any TRE certificate holder who is registered as a broker on a stock exchange on the date of commencement of this Act shall not be required to convert in to corporate brokerage house till one year from the commencement of this Act. Explanation. For the purpose of this sub-section the expression "Corporate brokerage house" means a private company or a public company which is registered as a broker. (9) All Corporate brokerage houses shall comply with the provisions of the Code of Corporate Governance issued by the Commission as amended from time to time. (10) Except as provided in sub-section (2), all TRE certificates shall be nontransferable. (11) Failure of a person, holding a TRE certificate including an initial shareholder, to get himself registered as a broker or commence business within the different periods specified in

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this section, or in the case of an initial shareholder, to transfer the TRE certificate within two years from the date of demutualization, shall result in the lapse of such TRE certificate. (12) The Commission shall prescribe the manner, form and procedures for the transfer and issuance of any TRE certificate in any stock exchange. . --------------Passed by the National Assembly on the 8th October, 2009 and by the Majlis-eShoora (Parliament) in its Joint Sitting on the 27th March, 2012 in terms of clause (3) of Article 70 of the Constitution of the Islamic Republic of Pakistan.

KARAMAT HUSSAIN NIAZI Secretary