listing notes (mod e) by rameez

Listing Regulations of KSE Notes Conceived by: Rameez Ahmed For suggestions, please email to : [email protected] KPMG Taseer Hadi & Co. (Islamabad)

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Important:

These Notes are not prepared for any course / subject. However, they will better serve the CA

students only. These are based on the Listing Regulations of KSE as amended in July 2012.

These Notes do not form a final opinion on law.

Dedicated to:

- M. Bilal Asif (my friend)

- Sir Aamir Jamal (my Manager/Mentor)

who both have encouraged my efforts and lent their helping hand where required.


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Procedure for making Regulations:

Any stock exchange can make the Regulations. Since Karachi Stock Exchange (KSE) is the largest stock

exchange in Pakistan, its listing regulations are treated as benchmark.

A stock exchange makes the regulations and sends them to SECP. Then, SECP gives approval. After

approval of SECP, the regulations are published in the Official Gazette. On such publication, the

regulations become effective & valid.

This procedure is adopted in accordance with section 34 of the Securities & Exchange Ordinance 1969.

Listing of companies & securities:

1. Dealings in a security of a company are allowed on the Stock Exchange only if:

Either the company or the security is listed; and

Permission is granted for such dealings.

We see that there are two different things, the Listing and the Permission. Now, a security may be

traded on the Stock Exchange only if:

Listing:

Either the company is listed on the Stock Exchange or at least such security is listed. Even if the

company itself is not listed, the security has to be listed on that Stock Exchange; and

(The application for Listing is made on Form-I)

Permission:

The company has obtained the “Permission for dealings in security” from the Stock Exchange. It

seems that the Permission is obtained by submitting a separate application for this purpose. (Reg 3.1,

3.2, 4.1)

Note:

Below is the Form-I which is Application for “Listing of a Security”. However, we see that there is

nothing in this Form that specifies the “Name of Security”, instead it seems to be for the Listing of a

Company.


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F O R M – I

APPLICATION under section 9 of the Securities & Exchange Ordinance 1969

for ‘Listing a Security on a Stock Exchange’

To:

The General Manager

Karachi Stock Exchange (Guarantee) Limited

Karachi.

Dear Sir,

1. We hereby apply for the listing of our (Name of the Company) on your

Stock Exchange.

2. Necessary information and documents as required under Regulation 4(1) are enclosed herewith.

Yours faithfully,

__________________

Signature & Address

c.c. to:

The SECP

ISLAMABAD

(as required under Sub-Section (1) of Section 9 of the Securities & Exchange Ordinance, 1969)

2. The Exchange decides the question of granting permission within 03 months (at max) from the date

of receipt of application. If permission is refused, reasons of such refusal are communicated to the

Applicant and SECP within 02 weeks of the decision.

3. The BOD of the Exchange is the sole authority to grant, defer, or refuse such permission. For this

purpose, the Board may relax any of these regulations by passing a resolution. The resolution shall

be passed by two-third (67%) majority of the directors present at such meeting of the Board.

(Regulation 3)


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4. The application for listing shall be made by the applicant company and prescribed documents (as

given in Annexure-I) shall be submitted along with it.

5. The Board may require additional documentation (eg, declarations, affirmations, etc).

6. If application is not submitted properly, the Board may defer its consideration or decline to consider

it. If application is declined, the applicant may move a fresh application after 06 months from the

date of such declination. In other words, once an application is declined, the company may not be

listed for 06 months (at least).

(Regulation 4)

Sec 9 (of Securities & Exchange Ordinance 1969): Listing of Securities

Listing of securities is of two types:

Voluntary Listing: It is done by the issuer through an application to the stock exchange (Sec 9).

Compulsory Listing: It is done by SECP in the public interest (Sec 10).

An issuer shall make an application to the Stock Exchange for the listing of its security. A copy of

such application shall be submitted to SECP. On such application, the Stock Exchange may list the

security.

If the Stock Exchange refuses to list a security, SECP may direct it to list the security. SECP may give

this direction on its own motion or on the petition of the applicant (within prescribed time). Before

any such refusal, the Stock Exchange shall provide the company an opportunity of being heard. (Sec

9.9)

Where, after the listing of a security, SECP or Stock Exchange finds a material deficiency in the

application, or issuer’s non-compliance of any condition, then SECP or the Stock Exchange may:

Require the issuer to correct the deficiency (within the specified time); or

Revoke the listing.

Before making the order of revocation, SECP or Stock Exchange shall provide an opportunity of

being heard to the company. (Sec 9.9)

If issuer intends to delist a security, it shall submit an application to the Stock Exchange. The Stock

Exchange may then delist the security. If it refuses to delist, then SECP may direct it to delist the

security. SECP may give such direction only on the petition of the applicant.

SECP or the Stock Exchange may suspend the trading of any listed security for a period up to 60


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days, if:

It is in the public interest to suspend the trading; or

It is in the interest of the trade.

This suspension may be extended (on the basis of written reasons) for further periods not exceeding

60 days at any time.

Please refer to this link for an order of SECP passed for suspension of Trading:

http://www.ise.com.pk/InterISE%5CFiles/Circulars/2011/2012-197.PDF

Good to Know:

In Regulation 3 above, we have seen that the Exchange sends a copy of ‘reasons of refusal’ to SECP

when it refuses the permission of dealings in a security. This is so because the Company sends a copy

of application of listing to SECP. So, the Exchange also keeps the SECP informed about the decision

on such application.

Since SECP may direct the Exchange to list a security (in accordance with Sec 9 of S&E Ordinance

1969, it seems that the ‘BOD of the Exchange’ is NOT the sole authority to grant, refuse, or defer the

permission / listing.

Undertaking:

For listing of a company or a security, the Applicant Company has to make 2 undertakings:

1. Undertaking to abide by the KSE Regulations; and

2. Further Undertakings

(a) Quoting, Removing, Suspending, De-listing a security;

(b) The overriding power of KSE Regulations.

2(a) Quoting, Removing, Suspending, De-listing a security;

It is the discretion of the KSE to quote the company’s securities on Ready Quotation Board (RQB) or

the Futures Counter (FC). (Regulation 2.i)

http://www.ise.com.pk/InterISE%5CFiles/Circulars/2011/2012-197.PDF


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If the company requests the KSE to remove its securities from RQB or FC, KSE is not bound by such

request. (Regulation 2.ii)

KSE has the right to suspend or remove any shares or securities from the RQB or FC considering the

public interest. (Regulation 2.iii)

If the company commits non-compliance or breach of these Undertakings, the security or the company

may be de-listed by the BOD of KSE. (Regulation 2.v)

2(b) The overriding power of KSE Regulations;

If the provisions of the AOA or any Declaration of the company are not in conformity with these

Regulations, the BOD of KSE shall order the company to amend such provisions. And these Regulations

shall be deemed to supersede those contradictory provisions. (Regulation 2.iv)

F O R M – II

FORM OF UNCONDITIONAL UNDERTAKING UNDER LISTING REGULATION NO. 5

ON NON-JUDICIAL STAMP PAPER OF RS. 20/-

Dated: _______________

The Governing Board of Directors

Karachi Stock Exchange (Guarantee) Limited

KARACHI.

U N D E R T A K I N G

We undertake, unconditionally, to abide by the Listing Regulations of the Karachi Stock Exchange

(Guarantee) Limited which presently are, or hereinafter may be in force.

We further undertake:

1. That our shares and securities shall be quoted on the Ready Quotation Board and/or the Futures Counter at

the discretion of the Exchange;

2. That the Exchange shall not be bound by our request to remove the shares or securities from the Ready

Quotation Board and/or the Futures Counter;

3. That the Exchange shall have the right, at any time, to suspend or remove the said shares or securities for

any reason which the Exchange considers sufficient in public interest;


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4. That such provisions in the articles of association (AOA) of our company or in any declaration or

agreement relating to any other security as are Not (or otherwise not deemed by the Exchange to be) in

conformity with the Listing Regulations of the Exchange shall, upon being called upon by the Exchange,

be amended forthwith and, until such time as these amendments are made, the provisions of these

Regulations shall be deemed to supersede the AOA of our company or the nominee relating to the other

securities to the extent indicated by the Exchange for purposes of amendment, and we shall not raise any

objection in relation to a direction by the Exchange for such amendment; and

5. That our company and/or the security may be de-listed by the Exchange in the event of non-compliance

and breach of this undertaking.

Yours faithfully,

_________________________ Common Seal of the Company

(Signature of Authorised Person)

OFFER OF CAPITAL BY COMPANIES / MODARABAS TO THE PUBLIC:

Size of Offer

Share Capital vs. Public Offer Share Capital ≤ Rs. 500 million Public offer shall be at least 50% of such

capital (ie at least Rs. 250 million)

Share Capital vs. Public Offer Share Capital > Rs. 500 million Public offer shall be higher of:

Rs. 250 million;

25% of such capital

Once size of the public offer is determined, the second step is to determine its allocation. The listing regulations

provide these limits on allocations:

Allocation to overseas

Pakistanis

Up to 20% of public offer 20%

Allocation to employees Up to 5% of public offer 5%

For Modaraba only:

To be subscribed by sponsors,

or their associates or friends,

relatives and associated

30% of Total paid-up capital


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undertakings

To be offered to General

Public

70% of Total paid-up capital

1. The following allocations of shares shall have restrictions on them.

Allocation of shares to sponsors in excess of 25%; and

Allocation of shares under Pre-IPO placement, including employees of the company or group

companies.

These shares shall not be saleable for a period of 06 months from the date of public subscription.

2. Where the shares of the company are issued /offered through book building, it shall comply with the

requirements as set out in Appendix 4 of these Regulations.

3. KSE may relax any requirement contained in these regulations. But it has to take prior approval of SECP

for relaxing any requirement.

Pre-conditions for Listing:

A company may be listed on KSE only if:

(a) The company is registered as a Public Ltd Company under the Companies Ordinance 1984 or set up

under a statute; (Reg 7.1)

(b) The company has paid up capital (including public offer) of Rs. 200 million or more;

(c) Public issue made by the company is subscribed by at least 500 applicants; (Reg 7.2)

(d) The company has provided an undertaking on Form – II. (Reg 5.1)

If ALL of these conditions exist, the company is eligible to be listed. Then, there are only some

formalities (eg, submitting applications, paying fees, etc) to get listed. Please note that “condition (c)” is

related also to Regulation 6 which contains provisions about the “size of public offer”. Besides these

conditions, the criteria & guidelines contained in Appendix-2 shall also be met for becoming eligible

for listing.


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The requirements in (a) and (b) above shall apply only to listing of shares. However, these requirements

may become applicable for other securities if any law so requires, or the Federal Govt so directs.

PROSPECTUS, ALLOTMENT, ISSUE AND TRANSFER OF SHARES

1. For any prospectus, the company needs to:

(a) Obtain “Clearance” of the Stock Exchange (as required by these Regulations); and

(b) Obtain “Approval” of SECP (as required by Sec 57 of the Companies Ordinance 1984)

2. After preparing prospectus, the company sends it to the Stock Exchange for Clearance. After satisfactory

review, the Exchange issues Clearance to the company. However, the Exchange may require the

company to include additional documents, information, etc in the prospectus before issuing the

Clearance.

3. After obtaining Clearance from the Stock Exchange, the company submits the following to SECP:

Application for approval of prospectus;

The prospectus; and

Clearance issued by the Stock Exchange.

4. After approval of SECP, the Prospectus and the Application Form shall be published by the company in

at least one widely circulated English and Urdu daily newspaper each at Karachi, Lahore and Islamabad

at least 7 (seven) days in advance but not more than 30 (thirty) days before the date of the opening of

subscription list. However, the Exchange may require the company to publish Prospectus and

Application Form in some other cities also. (Reg 8.4 and Sec 53.2 of CO 1984)

In other words, if a company publishes a prospectus, it has maximum 30 days to open the subscription

lists. However, it shall not open the subscription lists within 07 days after publishing the prospectus. By

this provision, the law and the regulations have provided a time of 07 days to the investors / public to

subscribe for shares. If this provision was not added in law, a company may publish a prospectus today

and open the subscription list tomorrow, thereby allowing no time to the General Public to subscribe for

shares. By these actions, directors would have gained significant benefits via manipulations.

Note:

Subscription lists are opened when subscription is closed. Suppose FFC issues shares to public. The last

date of subscription is 31 March 2012. Now, the subscription is closed on 31 March 2012. So,

subscription lists shall be opened on any subsequent day. These lists show the details of applicants who

submitted applications for shares (eg, Name, Application #, Amount received, etc)


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Good to Know:

Sec 53 of the Companies Ordinance 1984 is relevant here. As per Sec 53.2, SECP may allow the

company to publish prospectus more than 30 days before the opening of subscription lists.

5. Applications shall be accepted only through the bankers to the issue whose names shall be included in

the prospectus.

6. The company shall submit printed copies of the prospectus to the bankers-to-the-issue and the

Exchange. The quantity of the copies shall be determined by the Bankers and the Exchange respectively.

7. The directors or the Offerers, as the case may be, shall NOT PARTICIPATE in subscription of shares

offered to the general public.

8. The share certificates shall be issued in such marketable lots (or in any other manner) as may be

determined or approved by the Exchange. (Reg 8A)

9. The application money shall be refunded, within such time as is prescribed in regulation 9(4), if:

the company is not listed on the Exchange (for any reason whatsoever); or

the listing is refused. (Reg 8B)

Refund of money & allotment of shares: (Regulation 9 and 8A)

1. Now when the subscription is closed, the company shall inform the Exchange about the subscription

received within 05 working days. This information is provided to the Exchange along with a

“Certificate” from the Bankers-to-the-issue as a proof.

2. After closure of subscription list, the company has to take a decision within 10 days about which

applications have been accepted. The company shall refund the money to unsuccessful applicants within

10 days of such decision. (Please note that “Days” are mentioned here, so it seems that 10 days mean 10

days; it does not mean 10 Working days)

3. In case of over-subscription, the company (or the offerers) shall immediately submit to the Exchange

copies of the ballot register of successful applications.

4. The company shall despatch all shares certificates, in marketable lots, within 30 days of the closing of

subscription list to all the successful applicants under intimation to the Exchange. (Reg 9.6 & 8A)

Exception:


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If the security is declared to be ‘eligible security’, the company shall deposit the share certificates

directly into the CDS. In such case, share certificate shall not be sent to the Registered Address of the

applicants in the form of physical certificate.

5. If the listing of the company is refused, the company has to immediately refund money. However, the

compay has 15 days as a period of grace. From the 16th day, it shall refund the money plus surcharge @

1.5% per month for each day (in excess of 15 days).

Note:

Closing of subscription:

Subscription is closed at the end of the last date by which share applications can be submitted.

Closure of subscription lists:

When subscription is closed, subscription list is opened. This list(s) contains the particulars of the applicants

& money received, etc. Closure of subscription list normally takes 2-4 days.

Requirement of Regulations Requirement of Companies Ordinance

1 To inform the Exchange

about subscription

received

Within 05 working days from the

closing of subscription

(Reg 9.1)

N/A

2 To take decision about

successful applications

Within 10 days from the closure of

subscription lists

(Reg 9.2)

Same as in Regulations

3 To refund money to the

un-successful applicants

Within 10 days from the date of

decision

(Reg 9.3)

Same as in Regulations

However, if the company fails to refund the

money within 10 days, the directors shall be

liable to refund the money plus surcharge

@ 1.5% per month, from the end of 15th

day. (Sec 71)

It seems that the surcharge is applicable

from the 16th day but, if refund is not made

within 10 days, the directors shall become

liable (not the company) to refund money

from 11th day. They shall be liable to refund

only money from 11th – 15

th day. From 16

th


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day, they shall also become liable for

surcharge.

4 To refund money to

‘ALL’ applicants in case

the listing is refused

Refund money forthwith. However,

15 days are allowed to refund

money without Surcharge. From

16th day, refund money plus

surcharge @ 1.5% per month

(Reg 9.4)

Money becomes repayable if:

1. The company has not applied for

permission within 06 days after first

issue of the prospectus; or

2. Permission was not granted within 21

days from the closing of subscription

lists; or

3. Permission was not granted within 42

days from the closing of subscription

lists (in case that the Stock Exchange

intimated the company, within 21 days

after closing of subscription lists, that

the Application shall be given further

consideration)

Money shall be repaid forthwith but a

period of 08 days is allowed from the date

of any of the above events. From the 9th

day, directors shall become liable to refund

money plus surcharge @ 1.5% per month

for each day (after the 8th day).

(Sec 72)

5 Over-subscription Submit to the Exchange copies of

the Ballot Register of successful

applications.

(Point 2 & 3 above are related to

this. Obviously, when there is under-

subscription, the company has no

need to determine which

applications are successful. In that

case, all applications will be

accepted.)

(Reg 9.5)

N/A

(Point 2 & 3 above are related to this.

Obviously, when there is under-

subscription, the company has no need to

determine which applications are

successful. In that case, all applications will

be accepted.) (Sec 71)


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6 Despatching share

certificates

Within 30 days from the closure of

subscription list

+

Send intimation to the Exchange

(Reg 9.6)

7 Minimum subscription No requirement.

However, if the issue is not

subscribed by at least 500

applicants, the listing may be

refused. And when listing is refused,

the company has to repay money to

‘ALL’ applicants. (Refer to point-4

above)

Minimum subscription is to be raised;

otherwise, the company shall repay the

money to the applicants.

This requirement is applicable for the “first

issue to the public”. Not applicable for

subsequent issues. (Sec 68.7)

8 Keeping money in a

separate bank account

with a scheduled bank

N/A Money is to be so kept.

It is applicable only for first issue to the

public.

9 Effect if irregular

allotment

N/A Any irregular allotment shall be voidable at

the option of the applicant within 30 days

from the holding of Statutory Meeting (or

from the date of Allotment, as the case may

be). (Sec 70.1)

10 Payment of brokerage The company shall pay to the

members of the Exchange at the

minimum rate of 1% of the value of

the shares actually sold through

them. The brokerage shall be paid

within 30 days from the closing of

subscription lists.

(Reg 10)

N/A

The company has power to pay such

brokerage that is lawful for a company to

pay. But brokerage shall not exceed:

1. 1% of the price at which shares (or

debentures) issued have been actually

(and not merely) sold through the

broker; or

2. such other rate per cent as may be

specified by SECP, generally or in a

particular case.

(Sec 82.3)


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Allotment Letters (AL), Letters of Right (LOR), and Certificates: (Regulation 11)

The “Allotment letters” and the “Letters of right” may be split. However, they shall be split into marketable

lots only. On the other hand, the certificates of securities (eg, share certificates, or debenture certificates)

may be split or consolidated.

AL or LOR Security certificates

1 Splitting / consolidation

They may be split (not consolidated)

into marketable lots. (Reg 11.1)

They may be split (or consolidated) into

marketable lots. (Reg 11.2)

2 Time limit for splitting /

consolidation


receipt of application. (Reg 11.1)

Within 30 days from the date of receipt of

application. (Reg 11.2)

3 Non-marketable lots They may not be split into non-

marketable lots.

They may be split into non-marketable lots.

However, for this purpose, the company

may charge a fee from the applicant, which

shall not exceed Rs 100/- per certificate.

(Reg 11.2)

The applicant (or the holder of security) submits an application to the company. The company then splits or

consolidates the underlying securities / letters.

These requirements (as in Regulation 11 above) shall not apply where the security has been declared an

eligible security and held in the name of CDC. In such cases, the procedure as prescribed by the CDC shall

be complied with.

Transfer of shares: (Regulation 13 and Sec 76)

The shareholder shall make an “Application” to the company for the “Transfer & Registration” of Shares.

The company shall verify the signs of both shareholders (the Transferee and the Transferor) within 48 hours

of that request / application.

Within 45 days of such application, the company shall:

Complete the ‘Share Transfer’; and

Make ready for delivery the share certificates lodged with it for ‘Registration of transfer’.

This regulation shall not apply in case of eligible securities deposited into the CDS. In such cases, the

procedure as prescribed by the CDC shall be complied with.


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Listing Regulations Companies Ordinance

1 Making application for

Transfer

Not specified.

It may be made by the Tranferor or the

Transferee. (Sec 76.1)

2 Documents required with

the application

Not specified.

Stamped ‘Instrument of Transfer’ signed by

the Transferor & Transferee

+

Scrip

(Sec 76.1)

3 Alternative way of

Transfer where Transfer

Deed is lost / destroyed

Not specified.

Where transfer deed is lost / destroyed, the

Transferee may submit to the company:

An application bearing Stamp

(the Stamp as required for instrument of

transfer)

to the directors of the company that the

duly executed Transfer Deed has been lost /

destroyed.

(Sec 76.2)

4 Register of Transfer of

Shares & Debentures

Not specified.

It shall be maintained by the company and

kept at its Registered Office.

(Sec 76.4)

Share Transfer Books: (Regulation 14 and Sec 151)


1 Books closure notice for

companies quoted on

Ready Quotation Board

(Books mean

Register of members /

debenture-holders

+

Transfer books)

The company shall give at least 14

days notice to the Exchange before

closure of “Share Transfer Books”

for any purpose. (Reg 14.1)

A company (public or private, any

company) may close the Register of

Members / Debenture-holders by giving a 7

days prior notice by advertisement in a

newspaper. (Sec 151)

(See the Special Requirement in respect of

Listed Company, ie publishing notice in

additional newspapers)

2 Books closure notice for

companies quoted on

Futures Counter

The company shall give at least 21

days notice to the Exchange before

closure of “Share Transfer Books”

Same as above.

(See the Special Requirement in respect of


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or any other Corporate Action. The

notice shall be given on or before

20th of every month and the period

of notice shall begin from 21st of the

month. (Reg 14.1)

Listed Company, ie publishing notice in

additional newspapers)

3 Time limits for book

closure

At a time: 7-15 days

In total : 45 days per year

These are only for “Share Transfer

Register”, and not for other books.

(Reg 14.5)

At a time: Up to 30 days

In total : 45 days per year

These are only for “Register of Members /

Debenture-holders”, and not for other

books. (Sec 151)

4 Transfer fee Company cannot charge any transfer

fee. (Reg 14.4)

N/A

5 Lien on shares No listed company shall exercise

any lien whatsoever on fully paid

shares and nor shall there be any

restriction on transfer of fully paid

shares. This shall apply to “ALL”

listed ‘Securities’. (Reg 15)

N/A

The company shall treat the date of posting (ie, date on which documents are posted to the company) as the

date of lodgment of shares for the purpose for which shares transfer register is closed, provided that the

posted documents are received by the company before relevant action has been taken by the company.

The company shall issue transfer receipts immediately on receiving the shares for transfer.

DIVIDENDS AND ENTITLEMENTS

Dividends: (Regulation 16 & 19, and Sec 248-251)

1. It is the responsibility of every “Listed Company” and “Issuer of a Listed Security” to communicate to

the Exchange all of its BOD decisions relating to:

Cash dividend;

Bonus issue;

Right issue;

Any other entitlement or corporate action; or

Any other ‘Price Sensitive Information (PSI)’. (Reg 16.1)


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The intimation of these decisions shall be sent to the Exchange at least 14 days prior to the

‘Commencement of Book Closure”. (Reg 16.5, See Reg 14.1 also)

2. These decisions shall be first communicated to the Exchange and then to any other person or media.

3. Rumors / Enquiry:

For a ‘Listed Company’:

If a “Listed company” becomes aware of any rumor or other PSI that contains material information and

which could affect (i) Market Price of Listed securities; or (ii) Trading volume; the company should

clarify such rumor or PSI.

The clarification is done by confirming or denying the information. The company should provide the

facts to the Exchange. This information / clarification shall be provided within 01 day of the publication

/ broadcast of rumor.

For ‘Issuer’ of a listed security:

If Exchange enquires from Issuer about any ‘Unusual Movements’ in the (i) Price, or (ii) Trading

Volume, of its listed securities (or any related matter), the Issuer shall promptly provide clarification of

the matter.

Company / Issuer CEO / CFO

1 Penalty if financial

results or PSI are not

provided ‘Timely’

Rs 100k – Rs 1 M N/A

2 Penalty if financial

results are not provided

‘Accurately’

N/A Rs 100k – Rs 1 M


1 Despatch of Interim

Dividend Warrants


Commencement of Closing of

Share Transfer Books for the

purpose of determining dividend

entitlement.

(Reg 19.1.i)

Not specified.


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2 Despatch of Final

Dividend Warrants


General Meeting (GM) in which

such final dividend is approved.

(Reg 19.1.ii)

Not specified.

3 Intimate the Exchange

about posting of

dividend warrants to the

shareholders

Immediately after posting ALL the

warrants

Not specified.

4 Means of dispatch of

warrants

Registered post

(or as required otherwise by the

shareholders)

Registered post

(or as required otherwise by the

shareholders)

(Sec 250.3)

5 Encashment of dividend

warrants

At the ‘Place of the Registered

Office’ of the issuing company;

and

At Karachi, Hyderabad, Sukkur,

Quetta, Multan, Lahore,

Faisalabad, Islamabad, Rawalpindi

and Peshawar. (Reg 19.2)

Not specified.

6 Period for encashment 03 months from the date of issue.

(Reg 19.2)

Not specified.

7 Penalty for default Monetary:

Rs 5,000 fine for every day of

default to the company.

Non-monetary:

Notifying the name of the company

in the publications / daily

quotations.

Suspending the listing of company;

De-listing the company.

(Reg 16.3-4)

No penalty for company. The penalty is

only for CEO.

Monetary:

Up to Rs 1 M.

Non-monetary:

Up to 02 years imprisonment.

Loss of current office from the date of

conviction.

05 years Ban on becoming CEO or

director of any company.

(Sec 251.2-3)

8 Dividend to be paid out

of profits

Not specified. Dividend shall be paid only out of profits

of the company. (Sec 249)


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9 No dividend from:

the profit on disposal;

or

Un-realised gains on

Investment Property

(IAS-40)

Not specified. Dividend from the profits from disposal

(of PPE or other capital assets) can be paid

only if it is the normal business of the

company, or if all other losses are set off

against such profit.

Dividend cannot be paid out of ‘un-

realized gain on Investment Property.

(Sec 248.2)

10 Responsibility to ensure

payment of dividend

Company CEO (Sec 251.1)

11 Time for payment of

dividend

Not specified directly.

However, it is provided that the

dividend warrants are to be issued

within 30 days of declaration of

dividend, and they are encashable

for a period of 03 months from the

date of issue.

So, in total, a period of 04 months

is allowed to the company for

payment of dividend.

Note:

This Regulation of KSE seems

“Inconsistent” with the

Companies Ordinance 1984.

As prescribed by SECP. (Sec 251.1)

Prescribed period:

Listed company: 45 days.

Any other company: 30 days

from the date of declaration of dividend.

12 Authority to declare

dividend

Not specified. Company (in a general meeting) (Sec

248.1)

Directors (Explanation to Sec 251.1)

13 Authority to recommend

the amount of dividend

Not specified. Directors (Sec 248.1)

14 Parties to whom

dividend is to be paid

Not specified. Registered shareholders; or

Their order; or

Their Bankers / financial institution.

(Sec 250)


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15 Deferring the payment

of dividend

Not specified.

Since 04 months period is allowed,

so there is no question of deferring

the payment.

The payment of dividend to the

shareholders may be deferred after taking

the prior Permission of SECP on the basis

of any of the reasons mentioned in Sec

251.2.

Transactions by Beneficial Owners / Beneficial position-holders: (Regulation 16.6 & Sec 222)

Where any director, CEO, or executive of a listed company or their spouses:

Sell the shares of Listed Company (whether directly or indirectly); or

Buy the shares of Listed Company (whether directly or indirectly); or

Take any beneficial position in shares of the Listed Company (whether directly or indirectly);

of which he / she is a director, CEO, or executive (as the case may be), he / she shall immediately notify

in writing to the Company Secretary.

Such director, CEO or executive, as the case may be, shall also deliver a written record of:

the price,

number of shares,

form of share certificates, (ie, physical or electronic within the Central Depository System), and

nature of transaction,

to the Company Secretary within four (04) days of effecting the transaction.

The Company Secretary shall immediately forward the same to the Exchange for its dissemination to all

concerned. (Regulation 16.6)

Relevant:

Executive:

As per 4th

Schedule of the Companies Ordinance 1984, "Executive" means an employee (other than

the CEO and directors) whose basic salary exceeds Rs. 500,000/- in a financial year.


1 Parties It applies to:

1. Directors,

It applies to:

1. Directors,


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2. CEO, and

3. Executives,

of a listed company.

(Reg 16.6)

Note:

It is pertinent to note that in large

companies, Company Secretary &

CFO etc come in the definition of

‘Executive’ (as their salaries are

lucrative). So, they are automatically

covered in the Listing Regulations.

However, in small companies, this

may not be the case.

2. CEO,

3. Managing Agent,

4. CFO (Chief Accountant),

5. Company Secretary,

6. Auditor, and

7. Any other person who is (directly or

indirectly) the beneficial owner of more

than 10% of equity securities,

of a listed company.

(Sec 222.1)

2 Other parties in scope The spouses of the above-mentioned

parties shall also be in the scope of

this Regulation. If their spouses sell,

buy, or take a beneficial position in,

the shares of the Listed Company,

then they (ie, the Directors, CEO,

etc) have to submit the record of

their spouses’ transactions, etc.

No other parties are in scope.

However, if the above-mentioned parties

exercise short-selling indirectly (ie, via

minor children or spouses), they shall be

liable for the consequences of those indirect

transactions.

(Sec 223)

3 Submission of

Records, Statements,

etc.

If any director, CEO, or Executive

of a Listed Company, or their

spouses:

1. sell or buy the shares of that

Listed Company (directly or

indirectly), or

2. take any beneficial position in

the shares of that listed company

(directly or indirectly),

then, the said director, CEO, or

Executive, shall immediately notify

(in writing) to the Company

Secretary. He shall also deliver the

written record of Price, no. of

shares, form of share certificates (ie,

physical or electronic), and nature of

transaction to the Company

Secretary within 04 days of effecting

the transaction.

Every director, CEO, managing agent,

CFO, secretary, or auditor of a listed

company who is (or has been) the

beneficial owner of any of its equity

securities,

and

every person who is (directly or indirectly)

the beneficial owner of more than 10% of

such securities,

shall submit to the Registrar SECP, a

Return (in the prescribed form) containing

prescribed particulars pertaining to the

beneficial ownership of such securities.

If there is any change in the beneficial

interest, then he shall Notify the particulars

of such change in the prescribed form.

(Sec 222.1)


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(Reg 16.6)

4 Trading by Directors,

Officers, and Principal

shareholders, etc.

No requirement.

As said above, they shall submit a

written record of Trading in shares,

to the company secretary.

If any of the above parties make a GAIN

by the sale & purchase (or purchase &

sale) of any listed equity security of the

company, within a period of less than 06

months, he shall:

1. make a Report to the company,

2. tender the amount of Gain to the

company, and

3. simultaneously send an intimation to

this effect to the Registrar and SECP.

These requirements shall not apply to a

security acquired in good faith in

satisfaction of debt previously contracted.

(Sec 224.1)

Submission of Accounts & Reports: (Regulation 17-18, and Sec 230, 233, 245)


1 Sending Annual

Accounts & Reports to

the Exchange / SECP

‘before the General

Meeting’

Every listed company and issuer of

listed security shall send to the

Exchange its quarterly and annual

financial results. (Reg 17)

The company shall send Statutory

Report, Annual Report, and

Audited Accounts to the Exchange

at least 21 days before the meeting

of the shareholders at which these

are to be considered. The no. of

copies shall be prescribed by the

Exchange. (Reg 18.1)

Listed company shall send 05 copies of the

Accounts, Audit Report, and Directors’

Report to SECP, Registrar, and Stock

Exchange, at least 21 days before the

meeting of the members at which these are

to be considered. (Sec 233.4-5)

2 Sending Annual

Accounts & Reports to

the Exchange / SECP

‘after the General

Meeting’

Not specified. For Listed Company:

Listed company shall file with the Registrar

at least 03 copies of the Accounts, Audit

Report, and Directors’ Report. These shall

be the signed copies, and they shall be

signed by the CEO, Directors, Chairman of


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BOD, or the Auditors of the company (as

the case may be). These shall be filed

within 30 days from the date of such

meeting.

For any other Company:

All other requirements are same. The no.

of copies is at least 02 (instead of 03).

(Sec 242.1)

However, these are not mandatory for a

Private Company whose share capital is

less than Rs. 7.5 million.

(Sec 242.3)

3 Sending Notices,

Resolutions to the

Exchange / SECP

The company shall send to the

Exchange:

Copies of all Notices and

Resolutions prior to their

publication and despatch to the

shareholders; and

Certified copies of all such

resolutions as soon as these have

been adopted and become

effective. (Reg 18.2)

Copy of every Special Resolution

(authenticated by CEO and Company

Secretary) shall be filed with the Registrar

within 15 days of passing of such

resolution.

4 Sending Quarterly

Accounts to the

Exchange

The company shall send its

Quarterly Accounts to the

Exchange within the time

stipulated under the Companies

Ordinance (ie within 01 month of

the close of such quarter). The no.

of copies shall be prescribed by the

Exchange. (Reg 18.3)

Every Listed company shall send its

Quarterly Accounts to the Exchange &

members within 01 month of the close of

such quarter. The no. of copies is not

specified. (Sec 245.1.a)

And at least 03 copies of these accounts

shall also be filed with the Registrar &

SECP within the same time.

(Sec 245.1.b)

5 Signing of Accounts Not specified. Annual Accounts:

Annual accounts shall be signed by the

CEO and 01 Director; or


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At least 02 Directors who are present in

Pakistan (in case CEO is not in Pakistan)

(Sec 241)

Half-yearly Accounts:

Same as for Annual accounts.

Quarterly Accounts:

No requirement.

(Sec 245.2)

Annual General Meetings / Annual Review Meetings, Etc


1 Annual General Meeting

(AGM) requirement

Compulsory (Reg 20.1)

Compulsory (Sec 158)

2 Period within which

AGM is to be conducted

Within 04 months from the year-

end of the company. (Reg 20.1)

First AGM:

Within 18 months from the date of

incorporation.

Subsequent AGMs:

To be conducted in every calendar year.

Within 04 months from the year-end of the

company; but

Not more than 15 months from the date of

its previous AGM.

Example:

Suppose, RA Ltd conducted its 2nd

AGM

on 30 April 2011 (ie, within 4 months of

the year-end date 31 Dec 2010). Now, for

AGM of 2012, the company has these

limits:


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Till 30 April 2012 (ie, within 4 months);

OR

Till 31 July 2012 (ie, within 15 months

from the previous AGM).

It is clear that the 15 months limit is the

upper limit (the maximum limit). So, the

company (RA Ltd) may hold its AGM till

31 July 2012.

(Sec 158.1)

However, when we read Sec 233.1 of the

Companies Ordinance, it says that a

company has to prepare its Annual

Accounts from last balance sheet date up to

a date not-earlier-than the date of AGM by

more than 04 months. In other words, it

means that a company has to conduct an

AGM within 04 months (at max) of the

balance sheet date, except where extension

of 1 month is granted.

On the other hand, Sec 233.2 provides that

the period of Accounts shall not exceed 12

months. But Registrar may permit this for

some special reason (eg, to match the year-

ends with Tax Year or Holding Company’s

Year, etc).

Now, if we consider Sec 158 and Sec 233

simultaneously, there is significant

confusion. (See “Good to know” section

below for illustration)

3 Extension in AGM time The Exchange does not grant

extension itself. However, if

extension is granted by SECP, the

company has to notify this fact to

the Exchange by sending a copy of

SECP’s approval letter within 48

hours of receipt of such letter.

(Reg 20.1 proviso)

For Listed company:

SECP may grant extension up to 30 days.

For any other company:

Registrar may grant extension up to 30

days.

(Sec 158.1 proviso)


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4 Place to hold AGM Not specified.

However, all Listed Companies

have to take prior “approval” of the

Exchange in respect of date & time

of AGMs. (Reg 28.1)

For Listed company:

To be held in the town in which Registered

Office of the company is situated.

However, SECP may allow the company to

hold its AGM at any other place.

(Sec 158.2)

5 Minutes of meeting The company shall furnish certified

true copies of minutes of its AGM

and of every EGM to the Exchange

within 60 days of such meeting.

(Reg 21.1)

Every company has to keep minutes of the

following meetings:

General meetings;

Meetings of the BOD; and

Meetings of any Committee of the

BOD.

(Sec 173.1)

6 List of security-holders The company shall furnish a

complete list of all its security-

holders as at 31st December in

every calendar year. The list shall

be submitted within 30 days from

year-end (ie, till 30 Jan).

The list shall be affirmed to be

correct and up-to-date as at 31 Dec.

(Reg 21.2)

Not specified.

7 Information about ‘free

float shares’

Every Listed Company or issuer of

Listed Security shall submit:

the number; and

break-up;

of its free float shares on quarterly

basis (ie at end of March, June,

Sep, Dec).

This information shall be submitted

within 15 days of the end of each

quarter.

(Reg 21.3)

Not specified.

8 Annual Review Meeting

(ARM)

Each Modaraba shall hold an ARM

of its certificate-holders within 04

months from its year-end.

Not specified.


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It shall present its financial

statements before such meeting.

(Reg 20.1.i)

Good to Know:

AGM and Accounts: (Sec 158 and Sec 233 of Companies Ordinance)

A Power Generation Company (the company), a public unlisted company, has 30th June as its financial year-

end. The company filed a “True-up Petition” before NEPRA for the revision of its tariff rates in November

2011. The decision of NEPRA about Tariff Revision is pending, and it is now 30th June 2012. As per Sec 158,

the company has 4 months to conduct its AGM till 31 October 2012. It conducted its last AGM on 15th Oct

2011.

Since the Revision of Tariff by NEPRA would enhance the company’s revenue (as well as profits), the

company wants to delay its audit so that the decision of NEPRA is finalized before audit, and it could recognize

additional revenue in the year ended 30 June 2012 (in respect of the electricity units sold during July 2011 to

June 2012). According to the Auditors, if NEPRA decision is pending till Audit Report, the recognition of

additional Revenue would be inappropriate.

Thus, the company wants to take extension in holding its AGM and to start the audit late. As per Sec 158, it

may take extension of 1 month from Registrar. So, it seems us that AGM could be held till 30 Nov 2012 after 1

month extension.

Now, Sec 233 says that the company shall prepare its Accounts from the date of its last accounts and up to a

date not-earlier-than the date-of-meeting by more than 4 months. So, limit of 4 months is imposed. It means if

company wants to hold AGM on 30 Nov 2012, the Reporting date of its Accounts (for the year 2012) would be

31 July 2012 or any onward date (because in this case the gap between Reporting Date and the date of AGM

would not exceed 4 months). So, it seems that the company would prepare its Accounts for 13 months period in

this year (1 July 2011 to 31 July 2012).

Here comes Sec 233.2, it says that the period of Accounts shall not exceed 12 months (except with the Special

Permission of Registrar). Now if company prepares Accounts for 13 months this year, its comparatives for this

year and the comparatives in next year would be distorted. We assume that the company does not want to

change its year-end. So, in essence, it seems that when a company takes extension in holding AGM, it also

takes extension for preparation of Accounts (such that the period from the date of AGM and its Year-end may

exceed 4 months).

To summarize, we see that AGM is extended by 1 month; that AGM is to be held within 4 months of the

Reporting Date; and that Period of Accounts cannot exceed 12 months.

So, we conclude that the period of holding AGM is just 4 months from the date of AGM in normal cases. But

in some special cases (like, to match year-end of subsidiary and holding, etc), relaxation may be allowed.


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Increase of Capital & Allied Issues: (Regulation 22-24, and Sec 86)

A listed company shall immediately inform the Exchange about all decision of its (ie, company’s) BOD for any

change in its Authorised, Issued or Paid-up capital. The change in capital may occur by way of:

Bonus shares;

Right shares; or

Refund of capital


1 Decision of BOD to

change capital

The company shall immediately

inform the Exchange of such

decision. (Reg 22)

Every new issue of shares shall be a Right

Issue, ie, shares shall be first offered to the

existing members of the company.

However, the Federal Govt may exempt

this requirement for a public company if an

application to this effect is submitted to the

Federal Govt. (Sec 86.1)

2 Time limit to issue

‘Entitlement Letters’ or

‘Right Offers’

Within 30 days from the date of re-

opening of “Security Transfer

Register” of the company closed

for this purpose. (Reg 23.1)

This regulation shall not apply in

case of eligible securities deposited

into the CDS.

Not specified.

3 Extension in the period The company may take extension

of further 30 days (at max).

(Reg 23.2)

Not specified.

Bonus Shares:

1 Time limit to issue

‘Bonus shares’

Within 30 days from the date of re-

opening of “Share Transfer

Register” of the company closed

for this purpose. (Reg 24.1)

Not specified.

2 Ways in which bonus

shares may be issued

Bonus shares may be issued in

either of the 2 ways:

The bonus shares shall be

credited into the respective CDS

Not specified.


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Accounts of shareholders

maintained with the CDC; or

They dispatched to the

shareholders concerned by

registered post, unless those

entitled to receive the bonus

share certificates require

otherwise in writing.

(Reg 24.1.i)

3 Intimation to Exchange The company shall immediately

intimate the Exchange as soon as

the bonus shares are credited /

dispatched to the shareholders.

(Reg 24.1.ii)

In case of eligible securities

deposited into the CDS, in addition

to the above, procedure as

prescribed by the CDC shall also

be complied with.

Not specified.

Listing Of Subsidiary Company & Other Matters: (Regulation 25-29C)

1. A “Listed Company” distributing shares of its unlisted subsidiary company shall get such subsidiary company

listed on the Exchange within a period of 120 days from the date of approval of such distribution by the

shareholders at a meeting of such company.

Example:

Ferozsons Laboratories Ltd (FLL) is a public listed company which has 80% holding in an unlisted public

company, BF Biosciences Ltd (BFL). Suppose that FLL’s shareholders approve in AGM on 31 Aug 2011 that

shares of BFL shall be distributed (in any form). Now, FLL has to get BFL listed within 120 days from 31 Aug

2011 (ie, BFL is to be listed till 29 Dec 2011.

2. The distribution of shares may be in any of these forms:

Specie dividend (ie, Stock Dividend);

Right shares (or Right issue); or

Any similar distribution. (Regulation 25.1)


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Good to Know:

1. We know that “Right Issue” is made by the company to its existing shareholders. The Right

Issue may be made on some price or for free. If any issue is made free, it is called “Bonus

Issue”. And Bonus Issue is generally made to the existing shareholders, and not to the public. In

case of Right Issue, offer is made to existing shareholders and, if they decline, the shares are

offered to others (ie, outsiders, which may be institution / public).

It is obvious that Holding Company has control over financial & operating policies of the

Subsidiary. So, if any Right Issue is made by the Subsidiary, it is actually made by the Holding

Company (indirectly).

In the Regulation 25.1, KSE says that if Holding Company distributes shares of its subsidiary

“in the form of Right Shares”, the Holding has to get its subsidiary listed on KSE.

We see that “Right Issue” is not a distribution. And if it is assumed to be a “distribution”, should

we call any issue of shares by the Subsidiary to be a ‘distribution by Holding’? Obviously, it is

not the case because Companies Ordinance 1984 does not contain any such provision. So, in our

view, the Regulation 25.1 should include the words “Bonus shares” instead of “Right shares”.

3. If shares are distributed and the Subsidiary (BFL) is not listed (either due to refusal of the Exchange or due to the

fact that the Subsidiary did not apply for listing within 120 days), the Holding Company (FLL) shall encash the

shares within 30 days:

From the expiry of 120 days; or

From the date of refusal of listing.

whichever is earlier.

4. They shall be encashed at the higher of:

Face value (FV); or

Current Breakup value (ie, Net Assets / No. of shares)

5. If the Holding Company (listed company) fails to encash the shares, the Board of KSE shall:

Suspend the trading in the shares of the listed company; or

De-list the company. (Regulation 25.2)


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Amendment in MOA or AOA:

6. For any amendment in MOA or AOA of any company, the approval of its shareholders (members) is required in

the form of a Special Resolution, under the Companies Ordinance. However, in case of a listed company, a prior

“Clearance” from the Exchange is also required. So, the listed company has to obtain prior Clearance of the

Exchange for any “proposed amendment” in its MOA or AOA. (Regulation 26)

Board Meetings (ie meetings of BODs of the listed companies):

7. Every “listed company” and “issuer of listed security” shall notify to the Exchange, the date, time and place of its

board meeting specially called for consideration of its quarterly and annual accounts or for declaration of any

entitlement for the security holders.

The Exchange shall be notified at least 01week in advance of the date of meeting. (Regulation 29)

Issue of PTCs:

8. The company shall:

(a) Notify the Exchange about its decision to issue PTCs (Participation Term Certificates) and the purpose of

issuing TFCs;

(b) Submit a copy of the “Application made to Authorities” with relevant details and certified copy of the

Consent Order.

(c) All material particulars of the PTCs, including:

conditions governing the issue;

details of guarantee / securities and trustees; and

name of the subscribing institution(s). (Regulation 27)

Quality of Audit

“Quality of Audit” includes the provisions about:

QCR of ICAP;

Some eligibility criteria for the auditors of listed companies;

Professional misconduct; and

Prohibited services;

1. Listed companies shall facilitate QCR conducted by ICAP, and shall authorize their auditors to present their

Working Papers for QCR.

2. A listed company shall not appoint or continue to retain (the following persons) as an auditor:

(a) The person who is engaged by the company to provide prohibited services;


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(b) The person who is associated with any person who is (or has been, at any time during the preceding 03

months) engaged:

as a Consultant;

as an Advisor; or

to provide any of the prohibited services. (Regulation 29-C.ii)

Example:

Suppose Mr. B is associated with Mr. C and a listed company FFC has hired Mr. C for legal consultancy

services in Dec 2011. In its AGM held in Feb 2012, FFC wants to appoint its Auditors. Can Mr. B be

appointed as auditor?

Ans:

No. Since Mr. C has been engaged by FFC in the “prohibited services” during preceding 03 months, and Mr.

B is associated with Mr. C, so Mr. B cannot be appointed as Auditor by FFC (as per Listing Regulations).

(c) The person who has been “found” guilty of professional misconduct, by the SECP or by a Court of Law.

He shall not be appointed or retained as Auditor for:

a period of 03 years; or

a period specified by SECP (if SECP specifies shorter period).

In case a firm has been appointed as an auditor, and if any of its partners has been held guilty of professional

misconduct, the firm shall be eligible for appointment as an auditor, only if a written “Confirmation” is given

by the firm to the effect that such a partner shall not be engaged in the audit of any listed company for the

specified period (ie, a period specified above in 2.c).

The Confirmation shall be given to:

all the stock exchanges of Pakistan;

the SECP; and

a copy to ICAP.

Good to Know:

ICAP’s newsletter for May 2011 contained the following decisions of the Council:

1. Member Reprimanded with Name:

It was noted that Mr. Mushtaq Akbar, FCA [R-2358] committed following serious non-compliances

of standards while conducting the audit of financial statements of a listed company for the year ended

June 30, 2007:


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(i) As per the requirement of paragraph 2 of International Standard on Auditing (ISA) 500 (Audit

Evidence), the auditor should obtain sufficient appropriate audit evidence to be able to draw

reasonable conclusions on which to base the audit opinion, however:

(a) It was observed that no confirmation was received from the legal advisor.

(b) Ageing analysis for debtors was not prepared. It was noted that amounts of certain debtors

have been outstanding for several years, whereas, no provision was made in the financial

statements.

(ii) Internally-generated goodwill was recognized in the financial statements in clear violation of the

provisions of International Accounting Standard (IAS) 38, Intangible Assets, which calls for

modification of the audit report.

The Investigation Committee of the Institute found the member guilty of professional misconduct

under:

(i) Clause (3) of Part 4 of Schedule I of Chartered Accountants Ordinance, 1961 for non-compliance

of the Council’s directives contained in Fundamental Principle 11.6 of the Code of Ethics,

according to which a Chartered Accountant in practice is required to carry out professional

services in accordance with the requirements of International Accounting Standards, International

Standards on Auditing and relevant legislation i.e. the Companies Ordinance 1984, and

(ii) Clause (5) of Part 4 of Schedule I of the Chartered Accountants Ordinance, 1961 for committing

an act or default discreditable to a member of the Institute.

The Council, after deliberations, concurred with the findings of the Investigation Committee and

found Mr.Mushtaq Akbar guilty of professional misconduct under Clause (3) and Clause (5) of Part 4

of Schedule I of the Chartered Accountants Ordinance, 1961 and decided to reprimand Mr. Mushtaq

Akbar, FCA with name.

In the above case, Mr. Mushtaq Akbar has been found guilty of professional misconduct by ICAP. Can he conduct

the audit of a Listed Company? Or He has become disqualified from acting as Auditor of a Listed Company by the

Listing Regulations?

Yes, he can be the auditor of a Listed Company. As per Listing Regulation, a person has to be found guilty of

professional misconduct by:

SECP or the Court of law.


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Since ICAP is not a Court of law, this Regulation does not disqualify Mr. Mushtaq from being auditor of the listed

companies. However, SECP may take some action on the decision of Council and make an order for his

disqualification as auditor.

Suppose, SECP takes action and makes him disqualified from being the Auditor of a Listed Company for 3 years.

What’s the effect on the firm of which he is a partner? Assume he is the partner of “Haji Mushtaq & Co.

Chartered Accountants”?

Now, the firm (M/s Haji Mushtaq & Co. Chartered Accountants) shall give a written CONFIRMATION that Mr.

Mushtaq Akbar shall not be engaged in the audit of any listed company for a period of 3 years (as specified by SECP

in its order). The firm shall give this Confirmation to all the Stock Exchanges of Pakistan, the SECP, and a copy to

ICAP.

Good to Know:

2. Member Guilty of Moral Turpitude:

The Institute was informed that Mr. Sohail Ayaz, ACA [R-3244] has been convicted by a Competent

Court for an offence involving moral turpitude. The Council of the Institute has deliberated the

matter and concurred with the conclusions reached by the Investigation Committee and decided to

remove the name of Mr. Sohail Ayaz from the Register of Members of the Institute for a period of

five years under section 8(v) of the Chartered Accountants Ordinance, 1961.

In this case, the member of ICAP, Mr. Sohail Ayaz, has been convicted of an offence involving Moral Turpitude by

a Competent Court. Ignoring the provisions of the Companies Ordinance 1984, is he disqualified under listing

regulations from being the Auditor of a listed company?

I think NO. He has not committed any “Professional Misconduct”. So, as per Listing Regulations, he is still qualified

to be the Auditor of the Listed Companies.

But as per Companies Ordinance 1984, there is nothing that can disqualify him to be the Auditor. However, in

accordance with Sec 187.e of the Ordinance, he has become disqualified to be the director of any company.

Prohibited Services:

Following services are “prohibited” for the purpose of listing regulation 29-C:

1. Preparing financial statements, accounting records, and accounting services;

2. Financial IT system design and implementation, significant to overall financial statements;


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(For example, Ford Rhodes Sidat Haider & Co. Chartered Accountants have a separate company “Sidat Haider

Murshad Associates” which has developed a financial system “Sidat Financials”. So, if a company is using

“Sidat Financials”, it cannot appoint Ford Rhodes as its external auditors.)

3. Appraisal or valuation services for material items of financial statements;

For example, KPMG cannot be the auditor of a “listed” company if it is providing “gratuity valuation”, “PPE

valuation”, “Inventory valuation”, “Share valuation”, or other services of valuation or appraisal. Please note

that if there is a “foreign currency asset / loan”, its translation in presentation currency is not the valuation.

4. Acting as an Appointed Actuary (within the meaning of the term defined by the Insurance Ordinance, 2000);

5. Actuarial advice and reviews in respect of provisioning and loss assessments for an insurance entity;

6. Internal audit services related to:

internal accounting controls,

financial systems, or

financial statements;

7. Legal services;

8. Management functions or decisions;

9. Human resource services relating to:-

Executive recruitment;

Work performed (including secondments) where management decision will be made on behalf of a listed

audit client;

(For example, KPMG Islamabad sends its trainees on secondment to Shell Pakistan as a “Financial

Controller”. So, it cannot be appointed as external auditor of Shell Pakistan, if Shell is listed on KSE).

10. Corporate finance services, advice, or assistance which may involve independence threats such as promoting,

dealing in, or underwriting of, shares of audit clients.

11. Any exercise or assignment for estimation of financial effect of a transaction or event where an auditor provides

litigation support services as identified in paragraph 9.187 of Code of Ethics for Chartered Accountants.

12. Share Registration Services (Transfer Agents); and

13. Any other service(s) which the Council (of ICAP) with the prior approval of SECP, may determine to be a

“prohibited service”.


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Summary:

In general, Auditor cannot provide the following services to its “listed” audit client:

Book-keeping, accounting, etc.

Internal auditing

IT system services

HR services

Legal services

Actuarial services

Valuation services

Financial advisory services

Share Transfer Services

SECP may exempt any of the above services from these restrictions. SECP has sole authority to do so. In addition to

SECP, ICAP may also exempt any of such services. However, ICAP has to take prior approval of SECP.

Professional Misconduct:

A person appointed as an auditor shall be guilty of “professional misconduct” if he:

1. Fails to report a material misstatement or fact known to him, whose:

non-disclosure may render the financial statements misleading; or

disclosure is necessary in his professional capacity.

Example:

(a) For example, if company fails to keep ‘proper books of accounts’, this should be reported in the auditors’

report. The Crescent Investment Bank Ltd maintained “two” sets of books in 2006. The set provided to

auditors did not contain some loans & investments. So, it was held that the company failed to maintain the

‘proper books of accounts’.

(b) Suppose ABC Ltd’s financial statements give a true & fair view, but the auditors have found that the

company’s bank account was used for “money laundering” in one or two transactions. Now, this fact should

be disclosed at least in Management Letter. Disclosure of this is necessary in the professional capacity of the

auditor.

1. Fails to obtain sufficient information for expressing his audit opinion, or his exceptions are sufficiently material

to negate the expression of an opinion;

Explanation:


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It means if an auditor does not obtain “sufficient appropriate audit evidence” and expresses clean audit opinion,

it may be a ‘professional misconduct’. And

If he expresses an audit opinion and there were some exceptions that suggest that the auditor should not express

audit opinion (ie disclaimer).

2. Makes a statement which is misleading, or deceptive;

3. Incites anyone to commit a criminal offence, or

helps or encourages anyone in planning or execution of a criminal offence which is committed;

4. Agrees with anyone to prevent (or obstruct) the course of justice by concealing, destroying, or fabricating

evidence by a misleading statement which he knows to be untrue;

5. Deceives any person, either by making a statement, which he knows to be false, or by suppressing matters

relevant to a proper appreciation of its significance;

6. Expresses his opinion on financial statements of any business or enterprise in which he, his firm, or a partner in

his firm has substantial interest.

Explanation:

As per Companies Ordinance 1984, if any person is appointed as auditor, he has to dispose of the ‘shares’ within

90 days of the date of appointment. So, that person cannot conduct the Audit of the company.

Nonetheless, if that person expresses an audit opinion on any business in which there is some interest (in

violation of Companies Ordinance), he is deemed to be guilty of “professional misconduct” as per Listing

Regulations. However, he has also committed the violation of the Ordinance. So, he may be penalized by SECP

as well.

(Whenever KPMG is appointed as Auditor of a company, the Risk Management dept sends email to all the

Trainees, Employees, etc to intimate them. And as per policy, every person, that has any interest in such client,

has to dispose of that interest within 15 days of the date of “email intimation”.)

7. Is penalized under any of the provisions of the Companies Ordinance, 1984 in relation to his function as an

auditor of a listed company; and

8. Is guilty of any other act which is determined as professional misconduct by SECP in relation to his function as

an auditor of a listed company.

For example, when Auditor gives an “untrue” statement to be included in the prospectus of a “listed company”

and he knows that the statement is untrue.


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Associated with (ie Associated Person):

For the purposes of this Regulation 29-C, the expression “associated with” shall mean any person associated with the

auditor.

In case of Natural Person:

A person (suppose, Mr. C) is associated with the Auditor (Mr. RA) if the person (ie, Mr. C):

(a) is a partner in a firm, or

(b) is a director in a company, or

(c) holds or controls shares carrying more than 20% of the voting power in a company,

AND

The Auditor (ie, Mr. RA) is also:

(d) partner of that firm, or

(e) a director in that company, or

(f) holds or controls shares carrying more than 20% of the voting power in such company.

It means that if a Person meets any of the criteria (a to c) and if the Auditor meets any of the criteria (d to f), then both

the person and the auditor are “Associated with” each other.

In case of Legal Entity:

A person (suppose, FFC Ltd) is associated with the Auditor (Mr. RA) if the person (ie, FFC Ltd):

(a) is a company or body corporate,

AND

The Auditor (ie, Mr. RA) is:

(b) a director in such company or body corporate, or

(c) holds or controls shares carrying more than 20% of the voting power in such company, or

(d) has other interest to that extent (ie, more than 20%)

(Regulation 29-C.ii Explanation)


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DE-LISTING, SUSPENSION AND DEFAULTERS’ SEGMENT (Regulation 30 – 31)

Defaulters’ Segment (DS):

Reason Shall be placed in DS May be placed in DS

1 Delay in Commercial

Production, or Business

Commencement

In case of Manufacturing Company:

If the company has not started commercial

production within 03 years from the date of formal

listing; or

In case of any Other Company:

If the company has not commenced business within

03 years from the date of formal listing. (Reg 30.1.a)

N/A

2 Default in holding

AGMs

If the company has failed to hold its AGM for 02

consecutive years. (Reg 30.1.b)

Note:

As per Sec 305 of the Companies Ordinance 1984,

the company may be “wound up” on this basis.

N/A

3 Commencement of

Winding up

proceedings

If winding-up proceedings of the company have

commenced. (Reg 30.1.c)

N/A

4 Appointment of

(Official) Liquidator

If official liquidator / liquidator (of the company) has

been appointed, whether by the Court or the

company, as the case may be. (Reg 30.1.d)

Note:

As per Companies Ordinance 1984, in every winding

up, the Winding up commences before the

appointment of Official Liquidator (or Liquidator) or

concurrently with the appointment of Liquidator. So,

if Regulation 30.1.c provides that the company shall

be place at DS at the commencement of winding up,

then what is the need to say that the company shall

be place at DS also on the appointment of the

N/A


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Official Liquidator (or Liquidator)?

5 Default in payment of

Fees / Dues

If the company has failed to pay:

Annual Listing Fees for a period of 02 years;

Any penalty imposed under these Regulations;

and

Any other dues payable to the Exchange.

(Reg 30.1.e)

N/A

6 Refusal to join CDS If the company refuses to join the CDS after its

securities have been declared eligible securities by

the CDC. (Reg 30.1.g)

N/A

7 Non-compliance of

Listing Regulations

N/A If the company has failed to

comply with the requirements

of any of these Regulations.

The Exchange may also

suspend trading in its shares.

(Reg 30.1.f)

Further actions under Regulation 30.1 (b), (c), (e), (g):

In case of 30.1.(b): Default in holding 02 consecutive AGMs:

1. The company shall first be placed on Defaulters’ Segment.

2. Trading shall be suspended in shares of such company.

3. Notice of suspension (including therein the cause of suspension) shall be sent immediately to any other stock

exchange(s) on which such company is listed. The suspension in trading of shares of the company shall continue

till the default is rectified and annual accounts are approved.

4. On the date of suspension, the Exchange shall issue Notice to the company under intimation to SECP, for

rectifying the default within a period of 90 days.

5. However, Exchange may extend this period by further 90 days on reasonable grounds. Intimation to this effect

shall also be sent to SECP.

6. If the company still does not rectify the default (ie, default still exist at the end of 180 days), the Exchange (by a

Written Notice) shall delist the company under intimation to SECP.


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In case of 30.1.(c): Commencement of Winding up proceedings:

1. The company shall first be place on Defaulters’ Segment.

2. Trading shall be suspended in shares of such company.

3. Notice of suspension (including therein the cause of suspension) shall be sent immediately to any other stock

exchange(s) on which such company is listed.

The exchange shall suspend trading in shares of the company. Time for suspension is mentioned below:

In case of Voluntary Winding up In case of Winding up by Court

1 When to suspend

trading

We know that voluntary winding-up

always starts from passing of a Resolution.

As per Regulation 18.2, a listed company

has to send every resolution to the Stock

Exchange (prior to sending them to the

shareholders and publishing them in

newspapers). So, the Exchange gets

information prior to the shareholders.

Thus, when the Exchange receives the

information about the passing of

Resolution for Voluntary Winding up of

the company, the trading shall be

suspended on the next trading day, but

before the opening of market on that day.

Note:

Please note that trading shall be suspended

only when Resolution has been passed.

Since resolution is passed by shareholders

in a GM, it means that the Exchange will

get information (about the passing of

resolution) later than shareholders.

(Reg 30.1.c.ii)

Winding up by Court commences by any

of the Two means:

1. By company, (passing a Resolution

and presenting a Petition); or

2. By other parties (presenting a

Petition).

When the Exchange receives information

about “presentation of the winding-up

petition in the Court” or “passing of

special resolution”, it shall suspend the

trading in the shares of that company on

the next day, but before the opening of

the market on that day. (Reg 30.1.c.i)

However, in case where the winding-up

petition is presented by Creditor(s) or

Shareholder(s), the company shall be

placed in the Defaulters’ Segment and

trading in its shares suspended only if:

In case of Creditor(s):

Such creditor(s), either severally or

jointly, have a claim against the

company which is equivalent to at least

10% of equity of the company as per the

latest accounts available with the

Exchange; OR (Reg 30.1.c.i.a)


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In case of Shareholder(s):

Such shareholder(s), either severally or

jointly, own at least 10% of the

company’s paid-up capital.

(Reg 30.1.c.i.b)

Provided that the Exchange may relax

actions to be taken pursuant to sub-

clause (a) or (b) above, if it establishes

that placement of such company on the

Defaulters’ Segment and/or suspension

of trading in its shares, as the case may

be, is not in the best interest of the

market.

However, the Exchange shall ensure that

its decision to grant such relaxation is

immediately disseminated to the market

participants.

Provided further that where winding-up

proceedings are initiated by creditor(s) or

shareholder(s) who do not meet the

conditions specified in sub-clause

30.1.c.i (a) or (b) above, the Exchange

may place the company in the

Defaulters’ Segment and suspend trading

in its shares after expiry of two (02)

years from the date of commencement of

winding-up proceedings, if the matter is

yet to be disposed of by the Court.

(Reg 30.1.c.i proviso)

Note:

Please note that as per Companies

Ordinance 1984, winding up proceedings

have to be completed within 1 year from

the date of commencement of winding

up (ie, the prescribed period). So, the

above provision in the Listing

Regulations does not match with the


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requirements of law.

In case of 30.1.(e) and / or 30.1.(g): Default in fees / dues, and Refusal to join CDS:

1. When a company is place on Defaulters’ Segment, the Exchange shall issue instruction to such company (on the

same day) to rectify the default within 90 days.

2. If the company fails to rectify the default within 90 days, the Exchange shall:

(a) immediately suspend trading in shares of the company; and

(b) simultaneously issue “Compulsory Buy-back Directions” to the majority shareholders / sponsors (who have

control of the company) to provide all the shareholders an option for selling their shares to the majority

shareholders / sponsors and the shares tendered by the shareholders shall be purchased by the majority

shareholders / sponsors.

The price for such buy-back of shares shall be fixed by the Exchange in accordance with Regulation 30-A.

3. The company shall be de-listed (through a written notice) by the Exchange under intimation to SECP. The

company shall be de-listed:

(a) Upon completion of the “Compulsory Buy-back” of shares by majority shareholders / sponsors; or

(b) Upon failure of the company to comply with the “Compulsory Buy-back Directions” within reasonable time

specified by the Exchange in its notice, but not exceeding 90 days in total from the date of such directions.

In case the Company is also listed on other Stock Exchanges:

4. In case a company is also listed on another stock exchange in Pakistan but not in similar default as provided in

Regulation 30(1)(e), (ie Default of fees / dues), at such other stock exchange, the Exchange shall not issue any

directions for compulsory buy-back of its shares and shall de-list the company.

5. If the company is in default as provided in Regulation 30(1)(e) at all the stock exchanges where it is listed, the

compulsory buy-back directions shall be issued by all the stock exchanges in coordination with each other.

(Regulation 30.2)

General:

No company which has been de-listed or suspended shall be restored and its shares re-quoted until it removes the

causes of de-listing/suspension and receives the assent of the Board for the restoration.

No company shall be de-listed under these Regulations, unless such company has been given an opportunity of being

heard.

(Regulation 30.3, 30.4)


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Follow-up action after placing the companies in the Defaulters’ Segment:

1. In case the trading in shares of a company is suspended at ALL the Stock Exchanges on which it is listed, then

“Transfer in the physical shares” of such company shall be restricted.

Exception:

However, such restriction shall not be applicable in cases where:

The Share Registrar, Transfer Agent, or the company has received “Transfer Request” from a shareholder

prior to the date of suspension; or

The shares have been purchased prior to the date of suspension of trading, and the shareholder provides

proper “Instrument of Transfer” (evidencing purchase of such shares prior to the date of suspension) to the

Share Registrar, Transfer Agent, or the company.

2. It shall be mandatory upon the company to ensure that no transfer in physical shares (other than those specified

above) takes place during the period of suspension.

The company shall provide the Exchange with:

Copy of its Share Transfer Register, as of the day prior to the day of suspension; and

Details of any Transfers registered under Regulation 30(5)(a) subsequent to suspension shall also be submitted to

the Exchange within 48 hours of registration of such transfer.

(Regulation 30.5)

VOLUNTARY DE-LISTING (Regulation 30-A, 30-B, 30-C, 30-D)

Pre-conditions for “Voluntary De-listing” of a security: (Regulation 30-B)

Like “conditions for listing”, there are also some conditions for de-listing of a security. The Exchange has a

“Procedure for de-listing”. But the main thing is that security-holders have the business / interest with that security.

So, de-listing of security (against their will) may adversely affect their interests. Thus, one condition pertains to

“protecting their interests”, and the others are concerned with the “procedure of Exchange”.

The pre-conditions for de-listing are:

Approval of the proposal in general meeting of the security-holders by at least 75% (in number) of the security-

holders present (in person or by proxy) at such general meeting; and (Regulation 30-C. ii)

Compliance by the company with the prescribed procedure, guidelines, criteria, and other terms & conditions as

may be laid down by the Exchange. (Regulation 30-B. ii)


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Minimum % of shares (or securities) to be purchased, as determined by the Exchange or SECP, is purchased.

(Regulation 30-A. ii & iii)

The Exchange may (for any reason, whatsoever) refuse to accept the proposal of the company, the purchase price,

and/or the request to de-list the securities.

Main Points of De-listing Procedure:

1. Intimation of the “intention of sponsors” to de-list the security. (Regulation 30-A.i)

2. BOD’s decision to de-list the security + copy of Board Resolution passed for this purpose.

(Regulation 30-D.i)

3. Application for de-listing to Exchange (with fee) for Approval + Undertaking from Purchase Agent on

behalf of majority security holders + written Consent of the Purchase Agent.

(Regulation 30-C.i & ii, iv, v)

plus,

Undertaking to abide by these Regulations (submitted by Sponsors / Majority security-holders) +

Undertaking (submitted by Sponsors / Majority security-holders) to the effect that all material

disclosures relating to the affairs of the company have been made to the shareholders of the company

and the Exchange, and that they do not have any information which will constitute an offence under

Section 15A of the Securities and Exchange Ordinance, 1969.

(Regulation 30-A. iv & v)

4. After approval of ‘De-listing Application’, call GM of security-holders, and pass a Special Resolution

[by at least 75% (in number) of the security-holders present in the meeting]. (Regulation 30-C.ii)

5. Send (immediately after passing of Special Resolution) to the Exchange:

(a) Copy of Special Resolution;

(b) Complete list of holders of the security (which contains the below information);

securities held by the majority security-holders and others;

their names / category,

the number of securities; and

addresses. (Regulation 30-C.iii)

6. Send to All Minority Security-holders (ie, Security-holders other than Majority security-holders), by

post:


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(a) the decision taken in their General Meeting to purchase the securities; and

(b) a copy of the Special Resolution.

The company shall also publish a Notice in this behalf duly ‘approved by the Exchange’ in 02 widely

circulated newspapers including one of Karachi. (Regulation 30-C.vi)

7. The company shall also submit the following information on completion of the period of purchase:

Total number of issued securities (with percentage);

Securities owned by majority security-holders before the offer (with percentage);

Securities bought under the offer (with percentage);

Total securities currently owned by majority security-holders (with percentage), ie securities

owned after the purchase; and

Securities still outstanding with minority holders (with percentage), [suppose 100]

Amount of Bank Guarantee required @ Rs. 10 (at the purchase price approved by the

Exchange/Commission) per outstanding security. [so, total guarantee required will be Rs. 10 x

100 securities = Rs. 1000 ]

(Regulation 30-C.vii)

8. Sponsors shall submit (via Purchase Agent) a Bank Guarantee valid for 12 months (as mentioned in

point 7 above). However, if the Purchase Agent is member of the Exchange, it will submit

“Undertaking” in the prescribed format instead of Bank Guarantee.

(Regulation 30-C.viii a)

Procedure:

1. Any company intending to seek voluntary de-listing from the Exchange shall immediately intimate to the

Exchange:

(a) About the intention of the majority security-holders / sponsors to purchase all securities (without exception)

from all the security-holders with the purpose to de-list the security; and

(b) The reasons of de-listing.

Such intimation shall also include “minimum price” at which the securities are proposed to be purchased.

(Regulation 30-A. i)


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Good to Know:

Regulation 30-A.i & 30-D.i

Regulation 30-A.i provides that the company shall Intimate the Exchange about the “intention of its

sponsors / majority security holders” to purchase ALL the securities for the purpose of de-listing.

Regulation 30-D.i provides that the company shall Intimate the Exchange about the “decision of its

Board of Directors (ie, Company’s BOD) to de-list the securities, and shall send a copy of the relevant

Resolution passed in this regard.

However, the Regulations are silent at which intimation to be provided? Or In case of both

intimations, which will be decided first? What’s the time limit within which BOD of the company has

to decide about de-listing after sponsors have intended to de-list the company? Whose decision is

final, ie intention of the sponsors or the BOD of the company? What about conflict in both parties?

So, it seems us that only BOD’s decision is to be considered. Definitely, BOD is the supreme

authority of the company. So, sponsors / majority security-holders will communicate their intention to

BOD and the BOD will then decide whether to de-list the security or not. However, in Intimation of

sponsors, ‘purchase price’ is specified, but in the Intimation of BOD’s decision, there is no such

case!!!

Someone may ask that Sponsors are the final & supreme authority. If BOD does not obey them, they

will remove it and appoint new directors who will abide by their instructions.

Yes, this possibility may exist. But it is possible only in case of de-listing of “Ordinary Shares”

because Ordinary Shareholders elect the directors. Second, removing a director is not easy. Procedure

as per Companies Ordinance has to be followed.

2. The company shall immediately intimate the Exchange of the “decision of its Board of Directors” to de-list the

securities, including a copy of the relevant Resolution passed in this regard.

(Regulation 30-D. i)

Cases When to intimate the Exchange?

1 If decision of the BOD of the company is made

during Trading Hours

Intimation to the Exchange must be made during

Trading Hours


before the beginning of the ‘opening of

Trading’

Intimation to the Exchange must be made during

Trading Hours


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after Trading Hours

Intimation to the Exchange must be made before

opening of trading of the Exchange on the next

business day

(Regulation 30-D. i)

3. Within 01 week of the aforementioned intimation (ie, Intimation of BOD’s decision), the company will furnish its

sponsors’ “Undertaking” to purchase the securities owned by persons other than the sponsors at a purchase price

(ie, Undertaking to purchase securities from minority security-holders).

Note:

In the above Undertaking, sponsors undertake to purchase securities at “a purchase price”. In the

Intimation of sponsors’ intention (Regulation 30-A. i), sponsors have declared / proposed the

“minimum price” at which securities are to be purchased. However, the matter of “price” is not

finalized by the sponsors. Price is determined by the Exchange or SECP (see below provisions for

this). So, in the Undertaking, “a purchase price” is specified, instead of mentioning the fixed price

(say, Rs. 10 per security).

On receipt of such undertaking, the Exchange shall be empowered to ask for any additional information or details

which shall be provided by the company within 15 days of the date of such request by the Exchange.

(Regulation 30-D. ii)

4. The “minimum purchase price” proposed by the sponsors will be the “highest” of the benchmark price based on

any of the following:

(a) Current Market Price as of the date the exchange receives Intimation from sponsors / majority security-

holders.

(b) Average Market Price (Annualized)

(c) Intrinsic value per share (estimated net realizable value of assets of the company)

(d) Earnings Multiplier approach (for profitable companies)

(e) The maximum price at which the Sponsors had purchased these shares from the open market in the

preceding one year.

(Regulation 30-A. i)


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5. See point 3 above. Actually, that Undertaking is submitted with Application. So, once the ‘Intimation of the

BOD’s decision to de-list the security’ has been given to the Exchange, the company has to submit these

documents to the Exchange within 01 week:

(a) Application for de-listing to Exchange (with fee of Rs. 250,000) for Approval;

(b) Sponsors’ “Undertaking” to purchase the securities owned by persons other than the sponsors (ie, the persons

who are minority security-holders) at a purchase price; (See point 3 above) (Regulation 30-D.ii)

(c) Undertaking from Purchase Agent on behalf of majority security-holders; (Regulation 30-C.iv)

Undertaking from Purchase Agent:

This Undertaking shall be submitted by the company to the Exchange. It shall be given by the

Purchase Agent on behalf of the majority security-holders / sponsors.

It shall constitute an “irrevocable open offer” to purchase (at the relevant purchase price) the

securities from the other security-holders.

The said offer shall remain valid at least for a period of 60 days or as may be fixed by the

Exchange, from the date of commencement of purchase.

The purchase agent will provide a Bank Guarantee in an amount and such format as is demanded

by the Exchange to secure this obligation. The Bank Guarantee will remain valid till at least 15

days:

from the expiry date of the said Open Offer (ie expiry of at least 60 days period); or

when all outstanding securities have been purchased by the majority security-holders;

whichever is earlier.

Provided that:

1. Where a member of the Exchange is appointed as Purchase Agent and the total purchase

amount does not exceed Rs.2.5 million, the requirement of bank guarantee can be replaced

with the Undertaking of such member of the Exchange on the prescribed format.

2. In case of appointment of purchase agent other than a member of the Exchange, all trades

shall be routed through a member of the Exchange.

3. All trades during the initial period of 60-days will be conducted only on KATS irrespective

of marketable lot. The Purchase Agent will be required to maintain a live bid in the System

at the minimum purchase price approved by the Exchange. The purchase price shall be based


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on market forces, subject to minimum purchase price determined by the Exchange.

KATS Karachi Automated Trading System

BATS Bonds Automated Trading System (This system is introduced after KATS)

(d) written Consent of the Purchase Agent.

(e) Undertaking to abide by these Regulations (submitted by Sponsors / Majority security-holders);

(f) Undertaking (submitted by Sponsors / Majority security-holders) to the effect that all material disclosures

relating to the affairs of the company have been made to the shareholders of the company and the Exchange,

and that they do not have any information which will constitute an offence under Section 15A of the

Securities and Exchange Ordinance, 1969.

Sec 15A of SEO prohibits “Insider Trading”. So, it means that they will give undertaking that they have

disclosed all the information, and there is no information which could be used in “Insider Trading”.

(Regulation 30-A. iv, v And 30-C.i, ii, iv, v And 30-D. ii)

6. The BOD of the Exchange shall determine / approve the purchase price (on its own or on the basis of a Special

Committee). The decision of the Board (ie, BOD of the Exchange) will be communicated to the sponsors /

company and shall also be notified and announced immediately.

Any member of the Board and / or Special Committee holding 2% or more shares of the company applying for

voluntary de-listing will not participate in the deliberations while the case of the company is considered by the

Board / Committee. (This condition is for the ‘Internal purpose’ of the Exchange. It has no concern with

procedure-to-be-followed by the listed company applying for de-listing.)

(Regulation 30-D. iii)

The final minimum purchase price of the securities to be de-listed shall be fixed with the approval of the

Exchange. (Regulation 30-A. ii)

The sponsors will be required to convey their acceptance / refusal to the purchase price approved by the Board (ie,

BOD of the Exchange) within 07 days of conveying of the relevant decision to them.

If the company does not accept the price determined by the Exchange, it shall file an appeal before SECP within

10 days of its “decision to refuse” (under an intimation to the Exchange), in which case no further steps will be

taken on the de-listing application until SECP determines the purchase price.

(Regulation 30-D. iv & vi)

Good to Know:

Regulation 30-D. iv & vi are very conflicting. They are saying the same thing, but period of doing so is

different in both.


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In 30-D.iv, when Exchange determines the purchase price and conveys its decision to the company, the

company has 7 days to intimate its “Acceptance or Refusal” to the Exchange. Then, if the company Refuses

that price, it may file an appeal with SECP within 10 days from the date of decision. The word “decision” is

confusing here.

1. Does it mean the decision of Exchange about the price? Or

2. It means the decision (to accept or refuse the price) of the company?

If decision means (2) above, then there is no conflict in Regulation 30-D. iv and vi.

If decision means (1) above, then there is a conflict. Because in that case:

the company has 10 days (in total), from the date of price decision by the Exchange, to file an appeal

before SECP; and

the company has 17 days (in total), from the date of price decision by the Exchange) to file an appeal

before SECP.

Regulation 30-D.vi seems more appropriate, so its context is used in these Notes.

The Regulation-makers have used very confusing wordings in many places. I think that either they don’t have

sense or they want to create loop-holes!!!

7. When the Exchange approves the Application for de-listing, it fixes the price as well in that approval. So, Once

the purchase price has been finalized either by SECP (in appeal) or by the sponsors accepting the price fixed by

the Exchange, the company will be required to comply with the following procedure:

(a) To obtain approval of the proposal of voluntary de-listing in the general meeting of the security-holders

within 30 days of the acceptance of sponsors. (Please note that if SECP has determined the price, sponsors

have to accept it. So, in that case, it seems that the time would be 30 days from the date of SECP’s decision

about purchase price.)

(Regulation 30-D. v. a)

The company calls a General Meeting (GM) of the security-holders and takes its approval in the form of a

Special Resolution passed by at least 75% (in number) of the security-holders present (in person or by

proxy) in that meeting.

After such approval by GM, the sponsors / majority security-holders shall not withdraw their offer to

purchase ALL securities from ALL the security-holders with the purpose to de-list the security.

(Regulation 30-C. ii amd 39-A. vi)

(b) After approval of the General Meeting (GM), the requirements under Voluntary De-listing Regulations shall

be completed within 07 days of the GM, to commence the purchase of shares.


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Requirements to be completed within 07 days of the Approval of GM:

1. Send (immediately after passing of Special Resolution) to the Exchange:

(i) Copy of Special Resolution; and

(ii) Complete list of holders of the security (which contains the below information);

securities held by the majority security-holders and others;

their names / category;

the number of securities; and

addresses.

(Regulation 30-C. iii)

2. Send to All Minority Security-holders (ie, Security-holders other than Majority security-holders), by post:

(i) the decision taken in their General Meeting to purchase the securities; and

(ii) a copy of the Special Resolution.

The company shall also publish a Notice in this behalf duly ‘approved by the Exchange’ in 02 widely

circulated newspapers including one of Karachi.

(Regulation 30-C. vi)

3. Submitting ‘Undertakings’ (if any) in case they are not submitted with ‘De-listing Application’.

8. When fixing the purchase price of the security, the Exchange shall (at the same time) determine the minimum %

of securities to be purchased by sponsors to qualify for de-listing and the same will be communicated to the

company.

(It is same like the requirement of “Minimum Subscription” for Issue of Capital to the public, or listing of a

company. But SECP may change it on an appeal by the company. See below point)

(Regulation 30-A. ii)

9. In case of disagreement of sponsors on minimum % of securities to be purchased, as determined by the Exchange,

the sponsors will file an appeal with SECP within 10 days of receipt of communication of such determination

under intimation to the Exchange. The decision taken by SECP will be final and binding.

(Regulation 30-A. iii)

10. The sponsors will purchase the securities for a period of 60 days.

(Regulation 30-D. v. c and 30-C. iv)


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11. Upon expiry of the said purchase period, the company will submit the relevant documents / information to the

Exchange within a period of 21 days.

(Regulation 30-D. v. d)

Documents / Information to be submitted on completion of purchase period:

1. Total number of issued securities (with percentage);

2. Securities owned by majority security-holders before the offer (with percentage);

3. Securities bought under the offer (with percentage);

4. Total securities currently owned by majority security-holders (with percentage), ie securities

owned after the purchase; and

5. Securities still outstanding with minority holders (with percentage), [suppose 100];

6. Amount of Bank Guarantee required @ Rs. 10 (say) (at the purchase price approved by the

Exchange/Commission) per outstanding security.

[so, total guarantee required will be Rs. 10 x 100 securities = Rs. 1000 ]

(Regulation 30-C. vi)

12. In respect of the outstanding securities identified (ie, securities that are still left with minority-holders at the end

of purchase period), the sponsors shall:

(a) Continue to remain obliged to purchase the same at the relevant price (purchase price approved by the

Exchange / Commission) for a period of 12 months from the day following the expiry of initial buy-back

period of 60-days (ie 12 months from the 61st day); and

(b) Submit a Bank Guarantee valid for 12 months in an amount and format acceptable to the Exchange to secure

such obligation.

Provided that the requirement of submission of bank guarantee will not be applicable where a member of the

Exchange acts as Purchase Agent on behalf of sponsors. In such a situation, the purchase agent will be

required to submit an Undertaking in the format prescribed by the Exchange.

(Regulation 30-D. v. e)

13. After receipt of the required documents / information and compliance of the relevant requirements as stipulated by

the Exchange, the securities of the company shall stand de-listed after a period of 30 days.

(Regulation 30-C. viii a)


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14. The company once allowed de-listing under these Regulations will not be allowed re-listing of any of its securities

which have been de-listed at least for a period of 05 years from the date of delisting. However, the Exchange may

allow, on case-to-case basis, listing of such securities on the Over-the-Counter (OTC) market.

(Regulation 30-C. viii b)

Definitions pertaining to Regulation 30-A:

Intrinsic value per share:

The intrinsic value per share will be determined on the basis of “Revaluation of Assets”. The intrinsic

value may also include any other factor in addition to tangible and intangible assets of the company,

which may be considered appropriate by the Exchange, while fixing the price of shares.

The “Revaluation of Assets” shall:

(a) Be carried out by Professional Evaluator approved by Pakistan Banks’ Association (PBA), any

Investment Bank, or Valuers having relevant expertise; and

(b) Be duly certified by the Auditors falling in Category ‘A’ or ‘B’ of SBP list.

(c) Not be older than 06 months from the date of receipt of buy-back application.

Earning Multiplier approach (for profitable companies):

A “Profitable Company” is a company that declares an after-tax profit for 03 years preceding the date of

the application for voluntary de-Iisting as reported in its annual audited accounts.

Fair value = Estimated Earnings * P/E ratio:

Estimated earnings should be arrived at using the weighted average Earnings Per Share (EPS) of the last

03 years audited accounts.

For this purpose, EPS to be used should be the ‘Higher’ of:

(a) weights of 45%, 35%, and 20% assigned to preceding 03 years respectively; or

ie, EPS = 45% EPS1 + 35% EPS2 + 20% EPS3

(b) latest EPS.


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The P/E ratio to be used may be of the date the Exchange receives the application under 30-A (i).

This approach is based on the identity that a stock’s current price is the product of its actual EPS and the

P/E ratio; ie, Price = EPS x P/E ratio

The P/E ratio is calculated by dividing the current price by the actual EPS. To determine the value of

stock, both the earnings and the P/E ratio will have to be estimated.

ie, P/E ratio = Current Price of Stock (P)

EPS

Price may be determined as a multiple of the P/E ratio of the “related sector” as on the date of application

for the voluntary buy-back of shares. EPS may be based on:

(a) the latest audited accounts of the COMPANIES in that sector; or

(b) a weighted average EPS of last 3 years of those companies.

Average Market Price:

Daily “Closing Price” of the 03 years preceding the date the Exchange receives the intimation under 30-A

(i) should be used to calculate the Average Market Price.

Quoting securities at Par (Regulation 31)

Where no trading has taken place on the Exchange in the securities of a listed company for a continuous period of 180

days, the Exchange, if it is satisfied that the prices quoted are not in accordance with the market realities, may:

1. Where earlier quotation is “At or Above” Par value:

Quote such companies “at par” from the 181st day irrespective of the price earlier prevalent.

Exchange will take prior approval of SECP before doing so.

2. Where earlier quotation is “At or Above” Par value:

No regulation for this.

listing notes (mod e) by rameez

Documents

kse notes

fees dues

lost destroyed

names category

controls shares

balance sheet

circulated

haji mushtaq