Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: PAKISTAN STOCK BROKERS ASSOCIATION VS Respondent: PAKISTAN STOCK EXCHANGE LIMITEDHonorable Justice Muhammad Shafi Siddiqui, CJ and Jawad Akbar SarwanaZahid F. Ebrahim,Jam Asif Mehmood
2025 C L D 446 [Sindh] Before Muhammad Shafi Siddiqui, CJ and Jawad Akbar Sarwana, J PAKISTAN STOCK BROKERS ASSOCIATION---Petitioner Versus PAKISTAN STOCK EXCHANGE LIMITED through Chief Executive Officer and another---Respondents C.P. No.D-4449 of 2021, decided on 21st October, 2024. (a) Securities Act (III of 2015)--- ----Ss.7 & 8---Pakistan Stock Exchange (PSX) Regulations---Futures Eligibility Criteria (FEC)---Scope---Futures Eligibility Criteria (FEC) is part and parcel of PSX Regulations and is regulated by statute under S.7 of Securities Act, 2015---Component of FEC does not fall outside the domain of S. 7 of Securities Act, 2015 and is part of PSX Regulations---Framework of Securities Act, 2015 provides that regulations framed by PSX are statutory in nature and must be framed within the contours of parent statute as stated therein. (b) Securities Act (III of 2015)--- ----Ss. 7 & 8---Pakistan Stock Exchange (PSX) Regulations---Futures Eligibility Criteria (FEC)---Approval of regulations or amendments to regulations of Securities and Exchange Commission of the Pakistan (SECP)---Scope---Securities and Exchange Commission of Pakistan (SECP) when approving proposed regulations has two options under section 8 of Securities Act, 2015 i.e. either (i) to approve them, or (ii) to refuse to approve them---There is no third option available to SECP under S. 8 of Securities Act, 2015. (c) Securities Act (III of 2015)--- ----Ss. 7, 8& 169 (4)---Constitution of Pakistan, Arts. 18 & 25---Pakistan Stock Exchange (PSX) Regulations---Futures Eligibility Criteria (FEC)---Approval of regulations or amendments to regulations of Securities and Exchange Commission of Pakistan (SECP)---Scope---Petitioner / Stock Exchange Brokers Association assailed eligibility criteria for selection of securities eligible for trading in Deliverable Futures Contract and Cash Settled Futures Contract Markets referred to as Futures Eligibility Criteria (FEC), amending Pakistan Stock Exchange (PSX) Regulations for enhancement of Future Market---Held, that there was no publication of PSX Regulations, after SECP had introduced Criteria 4 (i) of FEC to PSX Regulations---Once SECP introduced a new provision, i.e. Criteria 4 (i) to FEC, SECP triggered precondition of public notice under S. 169(4) of Securities Act, 2015---Securities and Exchange Commission of Pakistan's contribution to PSX s proposed regulations of introducing criteria 4 (i) to FEC constituted making or amending a regulation under Securities Act, 2015 which mandated publication of such amendment by SECP---Securities and Exchange Commission of Pakistan failed to meet statutory condition set out in S.169(4) of Securities Act, 2015, i.e. eliciting public opinion on its draft version of PSX Regulations, which included Criteria 4 (i) of FEC---Criteria 4 (i) of FEC did not meet the test of introducing amendments to PSX Regulations under Securities Act, 2015---Criteria 4 (i) was illegal and unlawful made in contravention of Securities Act, 2015, thus, was of no legal effect---Eligibility notice dated 17-06-2021 issued by PSX at the material time suspended by High Court s interim order removing entities from approved list of eligibility securities on account of Criteria 4 (i) of FEC was not in accordance with law and the same was set aside---High Court declared that contents of Criteria 4 (i) of FEC to the extent of ousting securities of companies which obtained stay order from a Court against any inquiry / investigation initiated by Commission to be ineligible for trading in future market, was ultra vires of Arts. 9 & 25 of the Constitution---High Court stuck down Criteria 4 (i) of FEC to PSX Regulations as the same was un-Constitutional---Constitutional petition was allowed accordingly. Zahid F. Ebrahim for Petitioner. Jam Asif Mehmood for Respondent No.1. Raja Qasit Nawaz for Respondent No.2. Dates of hearing: 15th August, 23rd September and 3rd October, 2024. JUDGMENT JAWAD AKBAR SARWANA, J.----This Constitution Petition challenges the eligibility criteria for the selection of securities eligible for trading in Deliverable Futures Contract (DFC) and Cash Settled Futures Contract (CSF) Markets (hereinafter referred to as the Futures Eligibility Criteria or FEC interchangeably), specifically Criteria 4(i) of FEC, amending the Pakistan Stock Exchange ( PSX ) Regulations for the enhancement of Futures Market of PSX, as prescribed by the Respondent No.1, Pakistan Stock Exchange Limited ( PSX ) under Section 7(e) of the Securities Act ( SA ), 2015 and the Eligibility Notice dated 17.06.2021 issued by the PSX in pursuance thereof. References to PSX may be read as appropriate in its context. 2. The Petitioner, Pakistan Stock Brokers Association ( PSBA ), a company incorporated under Section 42 of the Companies Act, 2017, has prayed for the following reliefs against Respondent No.1, PSX, and Respondent No.2, the Securities and Exchange Commission of Pakistan ( SECP") in writ jurisdiction of this Court under Article 199 of the Constitution of the Islamic Republic of Pakistan: i. Declare that the Eligibility Notice dated 17.06.2021 to extent of Criteria 4(i) is illegal, as it was never submitted to the public for comment and even otherwise has been made in contravention of the Constitution and thus void ab-initio, and of no legal effect; ii. Direct the Respondents Nos.1 and 2 to immediately withdraw the Criteria 4(i) of the Eligibility Notice dated 17.06.2021 and all actions taken in pursuance thereof; iii. Suspend the removal of entities from the approved list of eligible securities as a consequence of the Criteria 4(i) of the Eligibility Notice dated 17.06.2021; iv. Suspend the operation of the Criteria 4(i) of the Eligibility Notice dated 17.06.2021; v. Permanently restrain the Respondents Nos.1 and 2 from acting on the basis of Criterion 4(i) of the Eligibility Notice dated 17.06.2021; . . . . 3. Learned Counsel for Petitioner submitted that while PSX was competent to frame PSX Regulations under SA, 2015, there was a rider insofar as the framing of such Regulations was concerned, which rider was binding on PSX. Learned Counsel relied upon Section 7(3) of the SA, 2015, arguing that powers to amend/modify the PSX Regulations concerning Chapters 13 and 14 of the Rule Book of PSX could only be exercised subject to the condition of its previous placement of such amendments/modifications to the PSX Regulation (proposed) to be published on the website of SECP along with the rationale for eliciting public opinion thereon for a period of not less than seven days starting from the date of its placement on the website. Counsel further submitted that the PSX Regulations, which were placed online by the Respondents on 19.10.2020, were not identical to those which were eventually approved, and, hence the impugned Criteria 4(i) of the FEC of the Regulations which was not mentioned in the proposed regulations uploaded online on the website of PSX and introduced for the first time in the regulations, which PSX and SECP were enforcing did not fulfil the criteria as required in terms of Section 7(3) of SA, 2015. Counsel also contended that the mandatory test of effectiveness for amendment/modification of such Regulations was inbuilt as the powers could only be exercised if such conditions were met. Learned Counsel further objected to Criteria 4(i) of FEC on the grounds that, notwithstanding that it never appeared on the website, it was contrary to fundamental rights under Article 4 of the Constitution of the Islamic Republic of Pakistan, as the members of the Association are being deprived from dealing with the securities on account of contest of enforcement of legal rights of such companies to agitate their grievance against the Commission before a Court of law. Therefore, Petitioner challenged the vires of Criteria 4(i) of FEC as being unconstitutional. 4. Counsel for the Respondents at the outset have challenged the maintainability of the Petition because the Petitioner is not an aggrieved person under Article 199 of the Constitution of the Islamic Republic of Pakistan. Both Counsel contended that the Petitioner is pleading the case of those companies whose securities have been removed from the Futures Market by PSX due to the amendment to the PSX Regulations under challenge by the Petitioner, but such companies in question (removed from the Eligibility List by PSX)1 had neither approached any Court of Law nor pleaded any rights under the Constitution nor filed any complaint before the SECP. Counsel further contended that PSX was a private entity with no nexus with the federal government and that the latter had no shareholding in PSX. Therefore, the Petition was also not maintainable against PSX on this score. Counsel further argued that the Petitioner and those companies impacted by the Regulations had recourse to the machinery provided under the SA, 2015, including appeals to challenge the notification/orders of PSX/SECP, yet no one initiated any such action. Counsel for Respondent No.1, PSX, further argued that the securities in question were not ordinary securities traded on the PSX but were altogether different in nature as these dealt with amendments/modifications of the Futures Market. The purpose of the amendment to the PSX Regulations was to mitigate the exposure of risk in the Futures Market to the general public, et. al., for the protection of investors, including stock brokers in the Futures Market, and, for the proper administration of securities exchanges. He contended that the aforesaid purpose was compromised when a company whose securities were being traded in the Futures Market of companies obtained a stay order from the Court against any inquiry/investigation initiated by the Commission, and securities of such company continued to be traded in the Futures Market. Criteria 4(i) made such a company's securities in the Futures Market ineligible to trade, and they would have to be removed from the Eligibility List of PSX. The modus operandi facilitated the above-mentioned objective of introducing the amendment to the PSX Regulations. Hence, the proposed Criteria 4(i) of FEC was necessary. With regard to the amendment/modification to the PSX Regulations, Counsel for Respondent No.2, SECP, contended that the requirement of Section 7(3) of SA, 2015 stood complied in terms of Regulations xli.A, 13 and 14 of the PSX Regulations, which were duly published online. But, the FEC was not part of the Regulations and did not require compliance. It was framed separately by PSX. The FEC, being a stand-alone component of the PSX Regulations, was not subject to the rigours of Section 7(3) of SA, 2015. He argued that PSX was at liberty to amend/notify the FEC and the Eligibility List on an as-and-when basis, as part of its powers under the SEC as a course of normal and routine matters, and was not liable to invite public comments in relation to such criteria. Therefore, he contended that the Petition was liable to be dismissed. 5. The Deputy Attorney General for Pakistan was also present and on notice on 22.10.2021, 23.11.2021 and 26.04.2023, but when this Petition was taken up for hearing, and during the course of hearing of this Petition submitted that Raja Qasit Nawaz Khan, learned advocate for Respondent No.2/SECP, would submit arguments on behalf of the Federation conceding that this lis did not involve any substantial questions as to the interpretation of constitutional law and rather concerned the determination whether the subject content of Criteria 4(1) of the FEC could be declared to be unconstitutional. We align with the Deputy Attorney General, and no one has opposed his stance. 6. We have heard learned counsel and perused the material in the Petition. 7. The Petition raises primarily three issues to be decided by this Court: (a) Whether FEC is a part of the PSX Regulations; (b) if the answer to (a) is in the affirmative, then did Criteria 4(i) of FEC meet the test for introducing amendments to the PSX Regulations under SA, 2015; and, finally, (c) whether the content of Criteria 4(i) of FEC in the PSX Regulations is ultra vires of the Constitution of the Islamic Republic of Pakistan. In order to address these three issues, it would be prudent first to set out the timeline of the alleged coming into force of the new regulations. Thereafter to identify the relevant laws and finally to turn to decide the above issues. 8. Before we proceed with taking up each of the three (3) issues, (a) to (c) framed by us above to decide the fate of the Petition filed by PSBA, we would like to address the challenge of maintainability of the Petition raised by the Respondents. At the outset, PSBA has challenged the vires of the SA, 2015 under Article 199 of the Constitution of the Islamic Republic of Pakistan, and given the background of the controversy and its involvement submitted by the Petitioner, we are not convinced that PSBA, on account of being a Section 42 Company, cannot be an aggrieved person. Counsel for Respondents contended that PSX was a private entity and relied on the pattern and category of shareholding of PSX as published in its Annual Report of 2023. They argued that the Federation had no shareholding, hence no writ could be sustained against it. The Respondent No.1/PSX was established under the Stock Exchanges (Corporatization, Demutualization and Integration) Act, 2012, regulated by Respondent No.2/SECP, and given the challenge raised by PSBA against PSX, this factor alone in the facts and circumstances of the case, alone could not oust the jurisdiction of this Court under Article 199. Furthermore, PSBA raised its challenge arising from the actions of a statutory body corporate, the Respondent No.2/SECP, itself created by the Federation of Pakistan for the beneficial regulation of capital markets, superintendence and control of corporate entities and for matters connected therewith and incidental thereto. The powers and functions and finance of SECP and as the chief regulator have nexus with the Federation. The majority of SECP s members of the Policy Board and the entire management of SECP are civil servants, too. As such, Respondents Counsels contention challenging the maintainability of the Petition based on the non-governmental composition of PSX, was neither here nor there. The final argument by Respondents Counsel as to the maintainability of this Petition was on the grounds of an adequate alternate remedy available to PSBA under Section 33 of the Securities and Exchange Commission of Pakistan Act, 1997 and Section 161 of SA, 2015. The matter at hand did not squarely fall within the subject matter of appeals against the final decision of the Commission under Section 161 of SA, 2015 and an Order of the Commission under Section 33 of the SECP Act, 1997. Therefore, we found this Petition maintainable under Article 199 of the Constitution of the Islamic Republic of Pakistan and continued with its hearing and decision herein. Timeline 9. On 19.10.2020, PSX notified the public that it was proposing to carry out amendments to the PSX Regulations in relation to the Enhancement of Futures Market of PSX. PSX invited all concerned to submit their comments by 26.10.2020. It is pertinent to note here that PSX attached two Annexures (consisting of 14 pages), namely, Annexures A and B . Annexure A consisted of amendments to Chapters 2, 13 and 14 of the PSX Regulations, whereas Annexure "B consisted of amendments to the old Uniform Criteria for selection of securities eligible for trading in DFC and CSF contract markets and replacing it with and introducing the EFC. At this point, Criteria 4(i) was not mentioned in Annexures A and B . The extract of the PSX notification dated 19-10-2020 and selected provisions from the two annexures are reproduced hereinbelow.
PAKISTAN STOCK EXCHANGE LIMITED . . . PSX/N-1151 NOTICE October 19, 2020 SOLICITATION OF PUBLIC COMMENTS PROPOSED AMENDMENTS TO PAKISTAN STOCK EXCHANGE LIMITED (PSX) REGULATIONS IN RELATION TO FUTURES MARKET OF PSX ----------------------------------------------------------------------------------------- This is to inform the public that the PSX, in exercise of power conferred upon it under section 7 of Securities Act, 2015, is proposing to carry and amendments to PSX Regulations in relation to Enhancement of Futures Market of PSX. . . . . . In view of the above, the proposed amendments to PSX Regulations and revised Futures Market Criteria for selection of securities eligible for trading in DFC and CSF Contract markets along with rationale thereof are attached herewith as Annexures A and B, respectively. In terms of Section 7(3) of the Securities Act, 2015, all concerned are invited to provide written comments on the proposed amendments, either in hard form or through email at comments.rad@psx.com.pk latest by Monday, October 26, 2020. ABBAS MIRZA GM and Acting Chief Regulatory Officer. 2 Annexure A 3
Proposed Amendments to PSX Regulations in relation to Future Market of PSX
Chapter 2 INTERPRETATION AND DEFINITIONS
EXISTING REGULATIONS
PROPOSED AMENDMENTS
RATIONALE
1xxxi. Uniform Criteria means the eligibility criteria for selection of eligible securities for trading in the different trading segments as prescribed by the Exchange duly approved by the Commission; NEW INSERTION
1xxxi. Uniform Criteria Means the eligibility criteria for selection of eligible securities for trading in the different trading segments as prescribed by the Exchange duly approved by the Commission; xli. A. Future Eligibility Criteria: means the eligibility criteria for selection of eligible securities for trading in the different trading segments as prescribed by the Exchange duly approved by the Commission;
Presently, the uniform criteria are prescribed for DFC, CSF, and MTS eligible securities. It is proposed that the criteria for DFC and CSF eligible securities may be segregated from MTS as MTS is a leverage product inherently different from the exchanged trade futures contracts. In addition, we have not seen any international jurisdiction having same criteria for future and margin trading securities. The criteria of DFC and CSF be named as Futures Eligibility Criteria (FEC) .
.
..
Chapter 13 DELIVERABLE FUTURES CONTRACT MARKET REGULATIONS
EXISTING REGULATIONS
PROPOSED AMENDMENTS
RATIONALE
13.1 DEFINITIONS
. . .
. . .
. . .
. . .
. . .
13.3. ELIGIBILITY OF SECURITIES5 13.3.1. The Securities eligible for trading in the Deliverable Futures Contract Market shall be determined . . under the Uniform Criteria. 13.3.2. . . .
13.3. ELIGIBILITY OF SECURITIES 13.3.1. The Securities eligible for trading in the Deliverable Futures Contract Market shall be determined by the Exchange every quarter six month in accordance with the requirements prescribed for final review and notice period under the Uniform Futures Eligibility Criteria
PSX proposed a quarterly review instead of interim review and final review. In each quarter, a stock may be added or excluded from the upcoming list of contract based on the eligibility criteria. Open contract on the excluded stocks shall remain available for market till their respective expiry periods.
Chapter 14. CASH SETTLED FUTURES CONTRACT MARKET REGULATIONS
EXISTING REGULATIONS
PROPOSED AMENDMENTS
RATIONALE
14.2. TRADING6 14.2.3. ELIGIBILITY OF SECURITIES (a) The Securities eligible for trading in the CSF Market shall be determined . . under the Uniform Criteria.
(b) .
14.2. TRADING 14.2.3. ELIGIBILITY OF SECURITIES (a) The Securities eligible for trading in the CSF Market shall be determined by the Exchange every quarter six month in accordance with the requirements prescribed for final review and notice period under the Uniform Futures Eligibility Criteria
PSX proposed a quarterly review instead of interim review and final review. In each quarter, a stock may be added or excluded from the upcoming list of contract based on the eligibility criteria. Open contract on the excluded stocks shall remain available for market till their respective expiry periods.
Annexure B 7 AMENDMENT TO UNIFORM CRITERIA FOR SELECTION OF SECURITIES ELIGIBLE FOR TRADING IN DFC AND CSF CONTRACT MARKETS
PROPOSED FUTURES ELIGIBILITY CRITERIA
RATIONABLE
FUTURE ELIGIBILITY CRITERIA FOR SELECTION OF SECURITIES ELIGIBLE FOR TRADING IN DELIVERABLE FUTURES CONTRACT (DFC) AND CSF CONTRACT (CSF) CONTRACT MARKETS
Uniform Criteria are proposed to the replaced with the Futures Eligibility Criteria for DFC and CSF Contract Markets.
BASIS OF SELECTION
PROPOSED CRITERIA
1. Maximum Number of Securities
. . .
2. Listing History
. . .
3. Trading History
. . .
4. Free Float
. . .
5. Investigation / enquiry8
Securities against which any investigation/enquiry has been concluded with adverse findings of mismanagement shall not be eligible.
6, Defaulters Segment
. . .
7. Exchange Traded Funds
. . .
The point-wise rationale for proposed changes in existing criteria are provided below: 1. PSX aims . . . 2. [No comments] 3. The increase in trading . . . 4. As the position limits in . . . 5. [No comments]
6. [No comments]
7. Inclusion of ETFs:
**** End of Proposed Amendments Page 14 of 14 8.(sic) According to the documents available on record, on 21.03.2021, the Regulator, SECP, wrote to PSX, approving amendments to PSX Regulations, which were attached as Annexure-I . Annexure-I included contents of both Annexures A and B along with a comparative table identifying which amendments and modifications made to the PSX regulations were approved by SECP as is, those which were not and finally, those proposals which were approved with amendments by SECP. Once again, the entire PSX Regulations approved by SECP included the FEC. Securities and Exchange Commission of Pakistan9 Securities Market Division Policy, Regulation and Development Department No.SMD/SE/2(254)/2014 May 21, 2021 . . . Mr. Farrukh H. Khan Chief Executive Officer Pakistan Stock Exchange Limited, Karachi Subject: Amendments to PSX Regulations relating to Futures Market Dear Sir, This is with reference to the Pakistan Stock Exchange Limited s (PSX) earlier communications in relation to the subject matter. In this regard, I am directed to communicate that the Securities and Exchange Commission of Pakistan, in exercise of its power conferred by Section 8 of the Securities Act, 2015, hereby approves amendments to PSX Regulations as per comparative enclosed as Annexure-I in relation to the futures market. PSX is advised to arrange publication of the aforementioned amendments in the PSX Regulations in the official gazette of Pakistan in terms of Section 8(5) of the Act and provide a copy of the gazette notification to the SECP for record. The approved amendments shall take effect from the date of this letter. . . . Regards, (Oneeb Ahmed) Assistant Director Cc: Chief Regulatory Officer, PSX Securities and Exchange Commission of Pakistan10 Securities Market Division Policy, Regulation and Development Department
Annexure-l
Existing Provisions
PSX Proposed Amendments
Text Approved by the Commission
Chapter 2: INTERPRETATION AND DEFINITIONS 1xxxi. Uniform Criteria means the eligibility criteria for selection of eligible securities for trading in the different trading segments as prescribed by the Exchange duly approved by the Commission; NEW INSERTION
Chapter 2: INTERPRETATION AND DEFINITIONS 1xxxi. Uniform Criteria Means the eligibility criteria for selection of eligible securities for trading in the different trading segments as prescribed by the Exchange duly approved by the Commission; xli. A. Future Eligibility Criteria: means the eligibility criteria for selection of eligible securities for trading in the different trading segments as prescribed by the Exchange duly approved by the Commission;
As propsed by PSX
. . .
. . .
. . .
FUTURES ELIGIBILITY CRITERIA FOR SELECTION OF SECURITIES ELIGIBLE FOR TRADING IN DELIVERABLE FUTURES CONTRACT (DFC) AND CASH SETTLED
FUTURES ELIGIBILITY CRITERIA FOR SELECTION OF SECURITIES ELIGIBLE FOR TRADING IN DELIVERABLE FUTURES CONTRACT (DFC) AND CASH SETTLED
. . .
FUTURES CONTRACT (CSF) CONTRACT MARKETS
FUTURES CONTRACT (CSF) CONTRACT MARKETS
. . .
BASIS OF SELECTION
PROPOSED CRITERIA
1. Maximum Number of Securities
. .
2. Listing History
. . .
3. Trading History
. . .
4, Free Float
. . .
5. Investiga-tion / enquiry
Securities against which any investigation / enquiry has been concluded with adverse findings of mismanagement shall not be eligible.
6. Defaul-ters Segment
7. Exchange Traded funds
. . .
1. Criteria
1. . . . 2. . . . 3. . . . 4. Securities of companies in the list after step (3), not complying with the following conditions to be ineligible: (i) No investigation / inquiry has been concluded against the company with adverse findings of mismanagement or the company has not obtained stay order from court against any enforcement…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.