Small traders will move their clearing, settlement, and custody functions to EClear Services Limited (ESL), the country’s first professional clearing member (PCM) entity has been established by the Central Depository Company (CDC).
ESL CEO Shariq Naseem, while speaking to the media, said more than two dozen trading-only agents have agreed to the company’s services.
“The purpose of this regulation is to prevent financially weak brokers from keeping clients’ assets with them. From now on, the professional clearing members will do clearing for small brokers and also provide them with custodial services,” said Mr. Naseem.
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He added that each stockbroker has been monitoring its clearing and custody purposes itself until now.
“If your broker defaults or runs away, you’ll have nothing to worry about as an investor. Your assets will be safe with the professional clearing member. You’ll be able to start working with another broker the very next day,” he said.
The clearing function in a stock market narrates to the settlement of trades. A clearing follower will match the buy and sell orders and transfer money to the seller while moving shares to the buyer.
In line with the new broker regime announced by the Securities and Exchange Commission of Pakistan (SECP), stockbrokers are classified into three sections.
The first category includes the Brokers who are allowed to do trading and clearing but keep shares in their custody. They are also given the provision for clearing and custodial services to other brokers.
Members of the second classification can do trading and self-clearing besides retaining custody of shares. But they are unable to provide these services to other stockbrokers.
While the third category includes small brokers with a trading-only mandate. These members have no clearing and custody privileges even for themselves.
Moreover, the SECP allotted the task of applying this rule to the three self-regulated organizations in the capital market i.e. PSX, CDC, and NCCPL while CDC operated as project manager.
