Following the conversion of Progressive Securities Ltd and CMA Securities Ltd, about 52 PSX brokers have converted under the new broker regime introduced by the Securities and Exchange Commission of Pakistan (SECP).

In order to facilitate the transition of smaller players’ clearing, settlement, and custody functions to EClear Services Ltd, the country’s first professional clearing member (PCM) established by the Central Depository Company (CDC), brokers have been categorised into three segments.

A stock market’s clearing function involves settlement of trades. It is the clearing member’s responsibility to match buy and sell orders and to transfer money to the seller while moving shares to the buyer.

Brokers in the first category are allowed to trade and clear shares while keeping them in custody. Additionally, they can provide clearing and custodial services to other brokers.

As well as maintaining custody of shares, members in the second category can do trading and self-clearing. However, they cannot provide these services to other stockbrokers.

Thirdly, small brokers with a trading-only mandate are gaining popularity in recent years. Even they do not have clearing and custody rights.

PSX said the latest two brokers that converted to the trading-only category will be cleared by EClear Services, which will settle executed trades and keep custody of securities and funds of all accounts, including proprietary accounts.

According to EClear Services’ representative, its purpose is to prevent financially weak brokers from keeping clients’ assets with them, which was the case until two years ago. If their existing broker defaults or tries to run away, investors can seamlessly switch to another broker if they have a professional clearing member.