The Securities and Exchange Commission of Pakistan (SECP) has eliminated the need to maintain distinct Entity Credit Ratings (ECR) and Broker Management Ratings and streamlined the rating standards for securities brokers (BMR).
By publishing a S. R. O. 361 (I)/2023 on Tuesday, the SECP revised the Public Offering (Regulated Securities Activities Licensing) Rules, 2017.
According to S. R. O. 361 (I)/2023, a securities broker must have a minimum BFR 3+ broker fiduciary rating from a credit rating agency authorised by the Commission: It further stated that all current securities brokers who are licenced as consultants to the issue must receive Broker Fiduciary Rating within any deadlines set by the Commission.
To increase efficiency in the capital market, these reforms aim to streamline the rating standards for securities brokers.
It is suggested to transition to a single rating regime based on BMR as planned in order to further streamline the rating criteria for securities brokers. Upon expiration of their current ECR or BMR rating as appropriate, or within six months of the date of adoption of these amendments, whichever occurs later, the brokers shall be obliged to achieve the stipulated Broker Fiduciary Rating (BFR). Hence, their current ECR and BMR ratings will be valid until they expire.
The Entity Credit Rating (ECR) and Broker Management Rating (BMR) are two ratings that securities brokers may be needed to earn under the prior regulatory framework in order to undertake a variety of tasks. With the intention of creating an unified rating system for securities brokers through the phased adoption of the BFR, the concept of broker fiduciary rating (BFR) was established.
By eliminating the necessity for securities brokers to maintain a specified ECR or BMR rating and, where applicable, mandating the minimum BFR to be maintained, the current modifications serve to give effect to the intended regime.
This necessitates making changes to the Public Offering (Regulated Securities Activities Licensing) Regulations, 2017 and the Securities Brokers (Licensing and Operations) Regulations, 2016 (“Public Offering Rules”).
The minimum rating criteria for Trading & Clearing (TC) brokers under Brokers Licensing Rules will be altered from ECR of A- to BFR 2 in accordance with amended modifications. According to the Brokers License Rules, the minimum BFR that Trading & Self-Clearing (TSC) brokers must maintain is BFR 3.
Brokers applying for a licence as a Consultant to Issue (CTI) under the Public Offering Licensing Regulations must maintain the BFR, which must be BFR 3+.
The Public Offering Licensing Regulations now provide that the brokers submitting an application for an Underwriter licence must have an ECR of at least A- or A2. They can also keep their BFR level at least at 3++. There will be no longer be any prerequisites for brokers to receive BMR.