SOHAIL SARFRAZ

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has sought powers to conduct the inspection of collateral management companies (CMCs) and proposed to make it mandatory for CMCs to obtain licenses from the commission to perform the activities of managing produce as collateral or any connected or related activities.

The SECP has issued draft Collateral Management and Warehousing (Establishment & Operations) Regulations, 2016, under the Companies Ordinance, 2016 here on Friday to encourage electronic trading of agricultural commodities through the platform of Pakistan Mercantile Exchange.

The regulations proposed power of the SECP to conduct inspections. The commission shall have the power to carry out inspections of the Collateral Management Company, Warehouses and any matter connected with the collateral management and warehousing business. Where the Commission satisfied that it is necessary and expedient so to do in the public interest or to prevent the affairs of any CMC or operations of any Warehouse that are likely to prejudice the interests of the stakeholders, the Commission may issue directions to the CMC or Warehouse operator.

The key objective of electronic trading and warehouse receipt financing of agricultural commodities is to enable the growers to get fair price of their produce, avail financing facilities and promote efficient payment system.

The salient features of the draft regulations include licensing conditions and financial resource requirements for collateral management company, duties of a collateral management company and the warehouse operator, and powers of the SECP to conduct inspection of collateral management company, its accredited warehouses and any matter connected with the warehousing business, as well as issue directions to a collateral management company or its accredited warehouse in public interest. The draft regulations have been published in the official gazette and placed on the SECP’s website (www.secp.gov.pk) for public consultation purposes. The stakeholders may forward their comments by December 23, 2016.

According to the draft regulations, no person shall operate or perform the activities of managing produce as collateral or any connected or related activities under the Ordinance unless its principal line of business relates to managing Produce as collateral or any connected or related activity; it is incorporated as a public or private company under the provisions of the Ordinance and it has obtained a license from the Commission under these regulations.

It said that the a Collateral Management Company shall obtain a license from the Commission to perform the activities of managing produce as collateral or any connected or related activities under the Ordinance or these regulation subject to the laid down conditions. 

The conditions included that the company’s sponsors, directors and key executives meet the fit and proper criteria as provided in Schedule-I. The company has a minimum equity of ten million rupees or such higher amount as may be specified by the Commission from time to time.

The company has necessary infrastructure including adequate office space, equipment, systems and technology and the company has key management personnel and technical experts with relevant qualifications and experience in warehousing.

The company’s chief executive possesses at least 5 years’ experience in the business of warehousing and company shall appoint its directors and the chief executive officer with prior approval of the Commission the company has affiliation with a recognized Collateral Management Company or regulated financial/capital market institution as acceptable to the Commission, the SECP added.

The duties of the CMC revealed that the warehouse is equipped with all the necessary equipment and apparatus including but not limited to drying, weighing, handling, sampling, grading, firefighting, circulation of stock, alternative power source, and insect/pest management. The warehouse operator has financial capability and adequate trained staff with expertise and knowledge for the storage of Produce in the Warehouse. Moreover, the warehouse has an efficient system for loading/unloading of Produce including proper mechanism for segregation of different kinds/quality of produce. The warehouse has adequate security arrangements and is located in a place which is accessible and is not excessively prone to natural disasters and warehouse is comprehensively insured for incidents including but not limited to natural disaster, fire, and theft, regulations added.