The Securities and Exchange Commission of Pakistan (SECP) aims to have institutional investors routing all their securities market transactions through Shariah compliant brokers from the 1st January 2028.
In its latest consultation paper, the SECP acknowledged that while most of the trading on the Pakistan Stock Exchange (PSX) already involves Shariah compliant securities, it noted that so far only “one brokerage house has obtained the license of a fully Shariah compliant securities broker”.
To overcome this limitation in the Islamic capital market in Pakistan, the SECP said it is imperative to enhance greater visibility of various Shariah compliant intermediaries – including brokerage houses, asset management companies, Takaful operators and related intermediaries.
“It is proposed that Shariah compliant institutional investors under the regulatory domain of SECP (such as mutual funds, pension funds, private funds, Takaful operators, window Takaful operators, Modarabas, Modaraba management companies, non-banking finance companies and more) be required to route more of their business through Shariah compliant brokers.”
The first phase till the 31st December 2026 will be to encourage usage of Shariah compliant brokers – numbers which need to be increased. The SECP said proactive measures are needed to attract new entrants and this will also facilitate the provision of Shariah compliant services by existing brokers.
From the 1st January 2027, these institutional investors must have at least one Shariah compliant broker in their panel, routing at least a certain threshold of their overall business through these Shariah compliant brokers.
“This is particularly important in a market like Pakistan where the growth in the number of investors in the capital market remain a challenge despite a number of reforms introduced.”
The SECP also noted that there is presently no regulatory mandate requiring Takaful operators to engage exclusively with Shariah compliant securities brokers – but it pointed out that under Rule 8(14)(j) of the Unit Linked Products and Funds Rules 2015, insurance companies are required to appoint a diversified panel of securities brokers to mitigate the risk of over-concentration with any single broker.
To foster such industry adoption, the SECP said Islamic financial institutions – including Islamic window operations – are encouraged to utilize Shariah compliant institutions and intermediaries even in instances where they are not obligated to do so.
“This may include using Takaful services for their insurance needs and Shariah compliant asset management companies for investment purposes.”
Another key aspect to be addressed is the current PSX equity trade settlements applied on a ‘T+2’ basis – resulting in a two-day price risk which may serve as a disincentive for the buyer and broker following Shariah compliance. The SECP urged that current practices in Indonesia and Malaysia be adapted to address these concerns in Pakistan.
