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DEMUTUALIZATION OF KARACHI STOCK EXCHANGE
INTRODUCTION & IMPLEMENTATION
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What is Demutualization
The Demutualization means the segregation of majority ownership of a stock
exchange from the right to trade on such stock exchange.
Demutualization is the process of continuing an organization from its mutual
ownership structure to share ownership structure.
The process, as per Stock Exchanges (Corporatization, Demutualization and
Integration) Act, comprises of:
obtaining regulatory consents;
converting membership rights into distinct trading rights and shares; and
transfer of a strategic stake to an investor;
public issuance and listing.
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Existing Proposed
COMPANY LIMITED BY
GUARANTEE
COMPANY LIMITED BY
SHARES
Corporate Structure
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Existing Proposed
10 directors to include:
5 member directors;
4 SECPs nominee directors
1 Managing Director
Initially, 11 directors to include:
4 directors from amongst the TRE
certificate-holders;
6 SECPs nominee directors (to be
replaced with directors representingstrategic investor and general
public)
1 Managing Director
Subsequently, all directors, except the
Managing Director, will be elected to theBoard through votes of shareholders.
Constitution of the Board
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Shareholding structure
100% shares to be allotted equally among 200 existing members of KSE
40% under house account of
existing members
60% in CDCs blocked account
under KSEs participant ID, to be
operated by the Board, and later on,
to be divested in the following
manner:
Upto 40% to strategic investor(s)
Upto 20% to general public
through offer for sale
Any remaining share to financial
institutions
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Powers of Demutualization Committee
(i) To approve the valuation of KSE undertaken and revised by Deutsche
Bank AG.
(ii) To enter into negotiations, finalize and execute agreements for sale of upto
40% of the total issued share capital of KSE out of the shares to be
deposited into CDCs blocked account with one or more strategic investorsor financial institutions at a price that is equal to or greater than the above
valuation.
(iii) To accept or reject an offer from a strategic investor, if the price offered is
less than the valuation as referred to above.
(iv) To determine the offer price for offer for sale to general public of not lessthan 20% of the total issued share capital of the Exchange out of the
shares to be deposited into CDC blocked account.
As proposed in the EOGM
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Timelines
The Stock Exchanges (Corporatization, Demutualization and Integration) Bill
was passed by the National Assembly on October 08, 2009 and by the
Parliament, in its joint session held on March 27, 2012.
The President of Pakistan signed the Stock Exchanges (Corporatization,
Demutualization and Integration) Act on May 07, 2012 (t0)initiating a definedroadmap, as explained in the following slides.
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t30June 06, 2012 [Target: May 29]
Action point Reference Comments
KSEs EOGM has to be held to ratify the
already existing Demutualization
Committee and to empower the
Committee.
Section 3 EOGM for the purpose is in
session.
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t45 June 21, 2012
CONTINUE
D
Action point Reference Comments
Exchange has to submit the following to
the SECP:
Section
4(1)
1. Valuation by Financial Advisor/
Investment Bank (can be extended to
120 days by SECP)
(a) Deutsche Bank retained to
revise its earlier valuation.
2. Revaluation of assets & liabilities by afirm of Chartered Accountants approved
by SECP
(b) FAMCO Associates retainedalong with Iqbal A. Nanjee &
Co.
3. Proposed authorized and paid-up capital
and number of shares @ Rs.10/- par
value
(c) Based on report on re-valuation
of KSEs assets and liabilities
4. Names of all existing members of KSEto act as initial shareholders along with
the number and value of shares to be
allotted to each
(d) Based on final list of membersas at a specific cut-off date and
report on re-valuation of assets
and liabilities
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t45 June 21, 2012
Action point Reference Comments
5. Names of four (4) out of current member
directors to act as interim directors until
the new Board is constituted under the
Act
(e) Proposed in this meeting
6. Proposed plan for segregation of
commercial and regulatory functions ofKSE
(f) M/s. Ahmed & Qazi appointed
to develop the plan
7. Draft Memorandum & Articles of
Association of the demutualized
Exchange
(g) M/s. Ahmed & Qazi appointed
to review & revise the previous
draft
8. Proposed 5-year development plan
along with capital expenditure estimateand sources of finance
(h) Being developed in-house
Note: Items 2 to 8 above are to be approved by the Board before submission to the
Commission
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Action point Reference Comments
Within 30 days from the submission of
documents, SECP would approve Items 2 -
8 above and also provide to the Exchange,
names of six (6) nominee directors
Section
4(2)
t75 July 21, 2012 [Target: July 20]
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Action point Reference Comments
Issuance of notice of EOGM by the
Exchange for the purpose of adoption of
new and approved Memorandum & Articles
of Association of the Exchange, through
Special Resolution
Section
5(1)
t84 July 30, 2012 [Target: July 24]
DEMUTUALIZATION OF KARACHI STOCK EXCHANGE: INTRODUCTION & IMPLEMENTATION
t A t 20 2012 [T t A t
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Action point Reference Comments
Within 30 days after SECPs approval,
Exchange must:
Section
5(1)
hold EOGM to adopt via Special
Resolution, KSEs Memorandum &
Articles of Association
(a)
allot shares to approved initialshareholders in scrip-less form
(b)
deposit 60% of shares allotted to each
initial shareholders in a blocked account
(c)
issue a certificate to each initial
shareholder certifying the number of
shares deposited in the blockedaccount
(d)
issue Trading Right Entitlement (TRE)
certificate to each initial shareholder
(e)
t105 August 20, 2012 [Target: August
15]
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t A t 27 2012 [T t A t
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Action point Reference Comments
Within 7 days after EOGM, Exchange must
deliver to concerned Registrar, the
following:
Section
5(3)
Certified copy of Special Resolution for
adoption of Memorandum & Articles of
Association
(a)
Certificate from KSEs auditors,
certifying issue of all shares to initial
shareholders in dematerialized format
(b)
Certificate from CDC certifying deposit
of 60% of allotted shares in blocked
account
(c)
t112 August 27, 2012 [Target: August
22]
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t S t b 03 2012 [T t
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Action point Reference Comments
Registrar to issue Certificate of Re-
registration as evidence of change of
status of the Exchange from a company
limited by guarantee to company limited
by shares
Section
6(1)
t119 September 03, 2012 [Target:
August 29]
Note: KSE will become a corporatized and demutualized exchange from the date of
receipt of the Certificate of Re-registration.
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t S t b 12 2012 [T t
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Action point Reference Comments
Issuance of notice for EOGM by the
Exchange for purpose of election of four
first directors of the demutualized
Exchange
Section
10(2)
t128 September 12, 2012 [Target:
September 05]
DEMUTUALIZATION OF KARACHI STOCK EXCHANGE: INTRODUCTION & IMPLEMENTATION
t O t b 03 2012 [T t
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Action point Reference Comments
EOGM, elections and constitution of new
Board of KSE
Section
10(2)
t149 October 03, 2012 [Target:
September 28]
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DEMUTUALIZATION OF KARACHI STOCK EXCHANGE: INTRODUCTION & IMPLEMENTATION
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