Market Profiles

FII Market Entry Requirements for Pakistan

RBC IS operates a segregated account structure in this market.

Please refer to 'Market Account Opening Requirements' for information on the market requirements. Clients are requested to refer to the requirements for information purposes only.

For further information or support around accessing this market, please contact your RBC IS representative.

Client Notice

Please note not all financial instruments and exchanges listed below are available as an RBCIS product offering. Please consult our Terms & Conditions or reach out to your RBCIS representative for further details.

Pakistan Stock Exchange (PSX)

The Karachi Stock Exchange (KSE), the Lahore Stock Exchange (LSE) and the Islamabad Stock Exchange (ISE) integrated into the Pakistan Stock Exchange (PSX).

Automated trading system.

Clearing and Settlement takes place at a centralised clearing system, the National Clearing and Settlement System (NCSS), which is managed by the National Clearing Company of Pakistan Limited (NCCPL).

** Order entered during pre-open session cannot be cancelled, modified or suspended.

ISIN (International Securities Identification Numbering): Yes

Other: Security Symbols

Securities and Exchange Commission of Pakistan (SECP): regulates the corporate sector, the PSX, the Central Depository Company (CDC), the National Clearing Company of Pakistan Limited and non-banking financial companies (NBFCs).

State Bank of Pakistan (SBP): responsible for foreign exchange regulations, monetary and credit control.

Mostly dematerialised. Trading at the exchanges through the automated systems is only allowed in scripless securities.

Equities: PSX changed the marketable lot size of listed securities in the ready/cash market to one share, effective July 21, 2009. However, this does not apply for orders entered during the pre-opening session, where the order size is as below:

Debt: 1 TFC unit = PKR 5000; and 1 NSB carries a minimum investment limit of PKR.20,000

Treasury Bills: 50,000 and subsequent investment in multiple of 5000 units. 

PIBs / SUKUK: 100,000 units.

There will be a security-wise circuit breaker for each Market separately (except StockIndex Futures Market) in case of price fluctuation of 5% or PKR 1.00, whichever is higher from the Closing Price of the previous day. 

Circuit Breaker shall also be applicable in Stock Index Futures Market, in case of movement of 7.5%, above or below the previous day closing price. In case of first trading day of a contract, circuit breaker shall apply on movement of 7.5% above or below the opening price of the day as determined during the pre-open session. No circuit breaker will be applicable on the last day of trading in a SIFC.

PKR

The OTC market at the PSX caters to small cap stocks, at present there are a few scrips listed on the OTC market.

The PSX has made amendments in the regulations governing the OTC market of the PSX. The securities listed under these regulations will be traded through the Karachi Automated Trading Systems (KATS) under the T+2 settlement system or any other counter subject to the clearing and settlement procedure as decided by the PSX with suffix “OTC” added to its symbol.

RVP Equities and Corporate Debt Settlement

1. Client issues a buy/sell order to broker on trade date (T).
2. A broker places an order on the Exchange and confirms the trade with the client.
3. Client sends settlement instructions to the local agent by SD-1 at the latest.
3.1. FX Instructions – client may send FX instructions via the following means

• Embedded in MT54x (Field 70E Code FXIN)
• MT599
• Standing Instructions issued one time via MT599 which authorise the local agent to send remittance request upon receipt of any purchase transaction

3.2. Remittance request – the local agent will send a remittance request via MT599 stating the indicative conversion rate and the equivalent USD to cover the trade. Client confirms via MT599 by SD that the funds have been credited to the correspondent bank account for value SD.
4. SD-1, the local agent manually pre-matches settlement instruction with the Broker/Counterparty by telephone/fax/email. Any mismatch is immediately clarified and rectified.
4.1. Upon successful pre-match and by 17:00 hrs on SD-1, the local agent is required to affirm the trades in the National Clearing and Settlement System (NCSS).
5. The local agent receives shares in Central Depository System (CDS) on SD.  
6. The local agent will convert the funds based on the FX instructions stated in 4 above and make onward payment via a State Bank's Real Time Gross Settlement system (RTGS) to the counterparty by 9.30 at the latest on SD.
7. For client trades settling through NCSS, the payment automatically moves through the Settling Bank Module (a module tagged via NCSS) on SD by 09:30. For client trades settling out of NCSS, payment is made by the subcustodian subsequent to confirmation of receipt of shares from the counterparty by 12:30 on SD.
8. Agent Bank sends settlement confirmation to client on SD.

DVP Equities and Corporate debt Settlement

1. Client issues buy/sell order to broker on trade date (T).
2. A broker places an order on the Exchange and confirms the trade with the client.
3. Client sends settlement instructions to local agent on by SD-1 at the latest.
3.1. FX Instructions – client may send FX instructions via the following means

• Embedded in MT54x (Field 70E, Code SPRO)
• MT599
• Standing Instructions issued one time via MT599 which authorise local agent to transfer funds on SD+1

4. SD-1, local agent manually pre-matches settlement instruction with Broker/Counterparty by telephone/fax/email. Any mismatch is immediately clarified and rectified.
4.1 Upon successful pre-match and by 17:00 hrs on SD-1, the local agent is required to affirm the trades in the National Clearing and Settlement System (NCSS).
5. The local agent will receive payment on SD from NCCPL.
5. The local agent will receive payment through RTGS from the counterparty on SD.
6. For trades settling via NCSS, the local agent's delivery obligations are automatically fetched from the client respective CDC sub-account on SD (for affirmed trades only). For client trades settling out of the NCSS, the local agent transfers shares to the counterparty's CDC account on the SD once the payment is received from the counterparty.
7. Agent Bank sends settlement confirmation to client on SD.
8. SD+1, local agent wires funds based of FX instructions stated in 5 above.

On SD, Securities are automatically transferred from the seller's CDS account to the buyer's CDS account.

Manual deliveries and use of the participants' Main Account are restricted only to exceptional circumstances that are not covered by the automated settlement process. As a result of this, settlement of a vast majority of securities transactions, executed at the stock exchanges are now performed directly from the respective accounts of investors without the need of any manual input of transaction, thus ensuring complete transparency and STP in the market.

Legal Framework Only allowed to FII in Futures Market in accordance with the following regulations of the KSE governing:

1. Risk Management
2. Deliverable Futures Contracts
3. Cash-Settled Futures Contracts
4. Stock Index Futures Contracts

Types of Securities Equities

Market Participants Local and FII

Penalties Would be imposed on the defaulting member (which may be charged to their client) by the exchange and/or the Clearing Company, pursuant to their respective regulations.

Turnaround trades are executed in the market. Most broker dealers maintain accounts with respective custodian banks to facilitate their execution. The process is therefore in-house.

The International Broker (IB) need not fund their account for buys on behalf of clients; however clients need to fund their Special Convertible Rupee Accounts (SCRAs) to cover for purchases. All local settlements are made in PKR. Netting is not allowed and full trade payments are required. The sale proceeds are credited to the IB's SCRA and the funds relating to purchases are debited from the IB's SCRA, difference is maintained in the account. The difference can be maintained or wired out to IBs designated account in the requested foreign currency, generally USD.

IBs are required to seek separate UIN and open depository account for trades on behalf of its clients to pass on the CGT liability to the end investor.

National Clearing Company of Pakistan Limited (NCCPL)  – maintains an electronic clearing & settlement system (NCSS), which has been developed to replace the individual clearing houses of Pakistan's three Stock Exchanges by a single entity.

The Central Depository Company of Pakistan Limited (CDC) maintains an electronic book entry system for settlement of trades carried out all the three Stock Exchanges of the Country called Central Depository System (CDS). The company keeps custody and transfer registration for equity, debt and other financial instruments electronically. 

Securities are immobilised. All securities are held under the CDC's nominee name. Legal ownership (beneficial ownership) is in the name of the account holder in which the shares are held.

Investors have the option to withdraw their securities from the depository and hold stock in physical form.

State Bank of Pakistan (SBP) is the depository for government securities. Government securities are safekept and registered in the Subsidiary General Ledger Account of RBC I&TS subcustodian under Investors Portfolio Services account. SBP provides for essentially two accounts at the SBP, one for the proprietary assets of the custodian; and the other 'Investor Portfolio Services' account for custodian’s client assets. The SBP furthermore has mandated the custodian to maintain individually segregated client accounts on its own books and share the details of the same with the SBP on a periodic basis.

BIS is an international organisation which fosters cooperation among central banks and other agencies in pursuit of monetary and financial stability. The Committee on Payments and Market Infrastructures (CPMI) uses three common structural approaches, or models, to categorise the links between delivery and payment in a securities settlement system.

BIS model 2 applies - a system in which securities transfers occur on a trade-for-trade (gross) basis throughout the processing cycle. However, fund transfers occur on a net basis at the end of the processing cycle. Security transfers are made via book entry and are final; fund transfers are irreversible, but not final. Therefore, final transfer of securities precedes final transfer of funds (i.e. delivery precedes payment).

Book-Entry: Scripless securities are held under CDC's nominee name and no registration is required.

The initial deposit date is 30 days from the declaration date for any security declared eligible for listing. The exchange notifies a deadline for physical settlement. Scripless settlement is generally three weeks from the deposit date.

For conversion purposes, the share certificates and transfer deeds are forwarded to the company registrar for verification and subsequent cancellation. After completion of this process, the registrar authorises the credit to the shareholder's account in the Central Depository System. The conversion process takes five days.

Investors have the option to hold stock in physical form and withdraw their securities from the depository, which takes one week. Securities held in physical form are kept in the bank's vault, dedicated to custody services. Assets of each customer are kept segregated. Shares and transfer deeds are kept separately in the vault for security purposes.

Shares that are held in physical form would have to be deposited in the CDC for trading purposes, as settlement is only possible in scripless form for CDC eligible securities. Entitlements will be received in the manner in which shares are held.

Physical: Registration is controlled by each company's local registrar and normally takes 45 to 60 days to complete. Shares cannot be sold during this period. Shares can be registered in the name of the beneficial owner, subcustodian or in nominee name.

As per the regulations of Central Depository Company all listed companies are required to outsource share function by appointing independent shares registrar service providers.

Refer to Registration Process.

Shareholdings in this market are required to be disclosed by the beneficial owner when such shareholdings exceed prescribed disclosure limits. Investors must ensure that they comply in full by reporting such holdings to the appropriate organisations for this market, within the timeframe required. If you have any questions regarding this issue we encourage you to consult your legal counsel.

Failure to comply with the reporting requirements in this market may lead to penalties and / or other sanctions.

Disclosure requirements are governed by two separate, co-existing ordinances: the Companies Ordinance 1984 and the Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Ordinance 2002.

Companies Ordinance 1984

• Any beneficial owner who acquires a holding of 10% of any listed company has to submit a report to the Securities & Exchange Commission of Pakistan (SECP) and the company registrar within 30 days of acquisition or within the same period after the listing of the security on the stock exchange.
• Any subsequent change in the holding has to be reported accordingly within 15 days of any such change.
• Capital gains realised within a period of six months of the above disclosure have to be reported and surrendered to the Company under intimation to the SECP and the Company Registrar

Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Ordinance 2002
Investors who acquire more than 10% of a listed company are required to disclose their holdings to the company and the stock exchange where the company is listed within two days of making an acquisition beyond the 10% level. Once this 10% disclosure has been made, an investor may acquire up to 25% of a listed company within 12 months without making any further disclosure to the exchange. However, once an investor has acquired 25% (but less than 51%) they must make a public announcement of offer to acquire any additional holdings. The announcement must be published in at least one daily publication that has circulation in the province where the relevant listing exchange is located. This announcement must be submitted to the SECP, Exchange, and the Company prior to publication.

This ordinance has to be observed in conjunction with the earlier regulation for disclosure requirements.

The government has further liberalised the scope of foreign investment by allowing investment in housing and real estate, wholesale trade/retail, agriculture, health and education.

Approval is required from the SBP for acquisition of 5% or more of the paid-up capital of any financial institution. Approval is also required from the SECP before non-residents can invest in arms and ammunition, security printing, currency and radioactive industry.

Delivery default in scripless shares to the clearinghouse or the NCSS is subject to a buy-in. On contractual SD after 17:00, the Delivery and Settlement Department at the PSX and the NCSS provide a list of share delivery defaults to the PSX's Market Control and Surveillance Department. The Market Control and Surveillance Department initiates a buy-in through the Karachi Automated Trading System (KATS) during the next business day. Buy-ins occur Monday to Thursday 11:30 - 12.00 and on Friday 11:00 - 11:30.

For the scripless segment, NCSS holds the payment equal to the amount of the failed delivery. The next day, after the buy-in session, any additional amount is adjusted against the overall cash position of the broker with the NCSS. All failed deliveries are subject to a penalty in the amount of 1% of the value of the undelivered shares or PKR 1,000, whichever is less.

For physical deliveries, buy-ins are at the discretion of the buying broker. If the seller is unable to meet its obligations by 17:00 on contractual SD, the buyer may initiate a buy-in. If a buy-in is to be initiated, the buyer will have to notify the PSX's Delivery and Settlement Department requesting to include the trade in the next day's buy-in. Alternatively, for failed physical deliveries, the counterparties involved may jointly decide to reschedule the settlement to the next clearing cycle. In this situation, the defaulting broker must pay a penalty, which varies from issue to issue.

In the case of extensive settlement delays, the subcustodian receives a pre-notification of a buy-in. In most cases they are then able to seek an extension for client's delivery obligations and therefore avoid a buy-in. Clients are kept abreast of all developments in this regard on a timely basis.

Legal Framework Yes, governed by Securities (Leveraged Markets and Pledging) Rules 2011. FII participation subject to SBP review. However, not Application for Foreign Institutional Investors.

Types of Securities Equities

Market Participants Local and FII

Lending Period 22 working days.

Note - fund sizes have not been disclosed by the PSX

AML Law enacted under the Anti Money Laundering Ordinance, 2009. A copy of the Ordinance and Rules may be downloaded from The Securities and Exchange Commission's website: http://www.secp.gov.pk/Services/laws_policies.asp

This is an FII market. Please contact your RBC Investor Services' Client Manager before making portfolio investments.

Foreign investors do not require any regulatory approvals to invest in the Pakistan market, with the exception of governments, government owned entities and semi-government bodies. Investment is freely allowed in listed/unlisted equities, listed corporate debt and government securities. Payment in respect of these investments has to be made in foreign currency through an inward remittance or through surplus balances in Special Convertible Rupee Accounts (SCRAs). Local currency cash account/s opened for the purpose of Foreign Portfolio Investment (FPI) are classified as SCRA, these are subject to documentation requirements. There are no restrictions on the repatriation on sale (disinvestment) and dividend proceeds.

Restrictions

• For private or unlisted public companies, the purchase price paid in foreign currency cannot be less than the certified book value of the company and the sale price cannot exceed the book value of the company.

Permissions

• Approval is required from the State Bank of Pakistan in the case of investment by any foreign government or semi-government entity.
• Approval is required from the Securities and Exchange Commission of Pakistan (SECP) for foreign investors to invest in the following four specific industries - arms and ammunition, security printing, currency and radioactive substances.
• Approval is required from State Bank of Pakistan if an individual/institution is willing to make an investment of 5% or more in relation to the paid up capital of any financial institutions. Banks and non-banking financial institutions (NBFIs) can acquire up to 5% of each other's paid up shares without prior State Bank of Pakistan approval.
• Effective from July 29, 2006 Banks/DFI's will need to obtain prior approval from SBP before purchasing shares of a company in excess of 5% of their paid up capital or 10% of the capital of the investee company, whichever lower (this approval is not required for non-resident investors making investments through Special Convertible Rupee Accounts (SCRA).

There are no restrictions from SBP on the repatriation of funds from Special Convertible Rupee Accounts (SCRAs).

The SBP's unified exchange rate system is based on the floating inter-bank rate (FIBR) for all receipts and payments. The SBP determines the official USD/PKR rate and each bank quotes its own FIBR rate as determined by the market.

In addition, the fixed conversion rate on old foreign currency accounts has been replaced by a market-based rate, quoted daily by the SBP.

A Foreign Exchange Manual is issued and updated by the State Bank of Pakistan.

All banks are required to report their clients' National Tax Numbers (NTN) against foreign exchange (FX) transactions. Clients should share their NTN enabling our subcustodian to report the NTN to SBP against the FX transactions in their respective Special Convertible Rupee Accounts (SCRA).

Real Time Gross Settlement System (RTGS) Mechanism (PRISM).

No overdrafts are permitted.

Dividends are usually processed and disbursed within 30 days post book closure date.However, it may take longer in case of a foreign investor due to reporting requirement to the State Bank of Pakistan.

Annual or semi-annual (within 30 days of the annual general meeting)

Semi-annual

Actual/365-day basis, but not applicable on SCRAs.

Corporate Actions are approved at the Annual General meeting (AGM). A change will only occur if the shareholders do not approve any corporate event.

Unpaid Letters of Rights (LORs) are now handled through the Central Depository System (CDS), providing electronic issuance, exercise and renunciation of rights.

PSX regulations permit market claims based on trade date positions. However, market claims for foreign investors are approved by the State Bank of Pakistan (SBP) on a case-to-case basis.

Foreign investors are entitled to the same voting rights as domestic investors.

No

Provided in English and Urdu. Extraordinary general meetings are announced three weeks in advance.

Notice Period 14 days prior to the meeting date . Notices and Agendas Announcements in PSX’s official bulletin, local newspapers.

On request, subject to availability.

On request, subject to availability.

Yes. A notarised and consularised power of attorney is required. The PoA executed at the time of account opening is sufficient for this purpose.

Peak Period January-February, July-October.

Companies may prohibit non-members from voting. The company secretary or a director may be appointed to execute votes under a power of attorney. Meeting attendance is mandatory to exercise voting rights. Voting is conducted by a show of hands unless a poll is demanded (by at least five members in attendance having the right to vote, or by any member or members present having not less than one-tenth of the voting power).

From July 1, 2017,  the rate of withholding tax on dividends from companies (excludes power generation companies or companies supplying coal exclusively to power generation project where the applicable tax rate is 7.5%) has been increased from 12.5% to 15% in case of a 'filer' recipient.  A 'non-filer' continues to be subject to 20% withholding tax rate on dividends.

The withholding tax rate of 10%, presently prescribed in the case of dividends distributed by a collective investment scheme, REIT scheme or a mutual fund, will be increased to 12.5% subject to the following criteria:

• 10% if the dividend is up to Rs. 2.5 million; and
• 12.5% if the dividend exceeds Rs. 2.5 million.

* "Filer" means a taxpayer who has been regularly filing its tax returns and whose name appears in the Active Taxpayers List maintained by the Federal Board of Revenue (FBR).

** "Non-filers" means a tax payer who is not a "filer".

Finance Bill 2019

• The concept of ‘filer’ and ‘non-filer’, as introduced through the Finance Act, 2014, no longer applies as the new Tenth Schedule to the Ordinance is now applicable. The provisions of that Schedule deal with persons whose names do not appear (previously termed as “non-filers”) in the ATL.
• The rate of withholding tax on dividend income is 15% in all cases except in the case of dividends received from Independent Power Producers (IPPs) which, subject to conditions, will be 7.5%.
• The tax rates are doubled for the clients whose names are not appearing on the ATL list. For e.g. the WHT rate on dividends for equity would be 30% for clients whose names are not appearing on ATL.

Withholding tax rates on interest income for foreign corporate investors is 10%.

For tax year 2022 / 2023, tax rates for Capital Gains on disposal of quoted shares and other specified securities have been kept at par with those applicable for tax:

Securities which were acquired on or before June 30, 2022 would be taxed at a rate of 12.5% irrespective of the holding period, this means that the previous exemption for the securities acquired before July 1, 2013 have also been abolished and a flat rate of 12.5% has been made applicable for all securities which were acquired before June 30, 2022.

The maximum tax withholding of 30% (being 100% of 15%) will apply on capital gains in case of FII, whose name does not appear on ATL.

Debt Securities were earlier taxed at 29% for all capital gains. However, effective from 27^th Dec 2019, this rate has been changed to 10% and will be withheld at source by the respective financial institution / bank.

CGT Tariff :

For physical transactions involving a change in beneficial ownership, the buyer is charged a stamp duty of 1.5% of the par value of the shares.

A stamp duty of PKR 0.015 per share is charged for the deposit of shares into CDC, and PKR 0.15 per share is charged for the withdrawal of shares from the CDC.

Capital Value Tax (CVT) at the rate of 0.02% is applied to the purchase of Modaraba certificates and any instruments of redeemable capital listed on registered stock exchanges. Effective April 17th, 2020, the application of CVT on the purchase value of listed equities was discontinued.

Adjustable WHT at the rate of 0.01% of the sale value is levied on all transactions conducted on the stock exchange.

WHT on banking transactions: With effect from July 1, 2015, banking company in Pakistan were required to withhold tax at a prescribed rate of the value of transactions from a non-filer where the total payments exceed PKR50,000 in a day.

WHT will be deducted at source from non-filers in the following cases:
- Any clean payment (including payment from which purchases are made) from the cash account except tax payments
- Remittance of sale proceeds and dividends

The prescribed tax rate was originally set for 0.6% and has been changed to 0.4% previously. The summary of the revision of tax rates are as follows:
- July 1, 2015 to July 10, 2015: 0.6%
- July 11, 2015 to October 31, 2015: 0.3%
- November 1, 2015 to February 29, 2016: 0.3%
- March 1, 2016 - December 31, 2017: 0.4%
- October 10, 2018 - 0.6%

No WHT on banking transactions will be deducted for clients who are filers.

There has been a change in the regulation effective from 27th Dec 2019 in which the banking transaction tax of 0.6% has been exempted for SCRA account holders provided they submit an undertaking stating that the entity does not have a permanent establishment in Pakistan. Further, the requirement to obtain NTN and also to file annual tax return will no longer apply to non-resident investors investing in “debt instruments & Government securities”. This means that despite not appearing on the Active Tax Payers List(ATL), they will not be subjected to higher tax withholding. The requirement for tax registration and tax filing stands for investment in equity markets as per earlier guidelines.

Sindh Sales Tax on Services 

The Sindh Sales Tax on Services Act 2011, effective July 1, 2011 enables the government to charge and collect sales tax on services, which were previously collected under the Federal Excise Duty (FED) Act. Effective July 1, 2016, the Sindh Sales Tax on Services has been reduced from 14% to 13%, on all 'non-fund services' provided by the banking or non-banking financial companies.

Super tax

• Super tax is abolished for non-banking sectors from tax year 2020.
• For banking companies, super tax at 4% is maintained up to tax year 2021.

Finance Bill proposes to amend the tax rates of Super Tax on Banking Companies up to tax year 2021. The reduced rate of 3% and 2% applicable for Tax Year 2020 and 2021 respectively are proposed to be increased to 4%.

In the case of persons (other than banking companies), having taxable income of Rs 500 Million or above, the rate of super tax of 1% for Tax Years 2020 is proposed to be reduced to 0%. The comparative rates are as follows:

Pakistan Holiday Calendar

• Pakistan Stock Exchange http://www.psx.com.pk/
• Central Depository of Pakistan www.cdcpakistan.com
• National Clearing Company of Pakistan www.nccpl.com.pk
• Securities Exchange Commission of Pakistan www.secp.gov.pk
• Government of Pakistan www.pakistan.gov.pk
• Ministry of Finance finance.gov.pk
• State Bank of Pakistan www.sbp.org.pk