Listing notes (Mod E) by Rameez

Listing Regulations of KSE Notes Conceived by: Rameez Ahmed
For suggestions, please email to : genius08ra@yahoo.com KPMG Taseer Hadi & Co. (Islamabad)

Important:

These Notes are not prepared for any course / subject. However, they will better serve the CA
students only. These are based on the Listing Regulations of KSE as amended in July 2012.

These Notes do not form a final opinion on law.

Dedicated to:

- M. Bilal Asif (my friend)

- Sir Aamir Jamal (my Manager/Mentor)

who both have encouraged my efforts and lent their helping hand where required.

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Procedure for making Regulations:

Any stock exchange can make the Regulations. Since Karachi Stock Exchange (KSE) is the largest stock
exchange in Pakistan, its listing regulations are treated as benchmark.

A stock exchange makes the regulations and sends them to SECP. Then, SECP gives approval. After
approval of SECP, the regulations are published in the Official Gazette. On such publication, the
regulations become effective & valid.

This procedure is adopted in accordance with section 34 of the Securities & Exchange Ordinance 1969.

Listing of companies & securities:

1. Dealings in a security of a company are allowed on the Stock Exchange only if:

 Either the company or the security is listed; and
 Permission is granted for such dealings.

We see that there are two different things, the Listing and the Permission. Now, a security may be
traded on the Stock Exchange only if:

Listing:

Either the company is listed on the Stock Exchange or at least such security is listed. Even if the
company itself is not listed, the security has to be listed on that Stock Exchange; and

(The application for Listing is made on Form-I)

Permission:

The company has obtained the “Permission for dealings in security” from the Stock Exchange. It
seems that the Permission is obtained by submitting a separate application for this purpose. (Reg 3.1,
3.2, 4.1)

Note:

Below is the Form-I which is Application for “Listing of a Security”. However, we see that there is
nothing in this Form that specifies the “Name of Security”, instead it seems to be for the Listing of a
Company.

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FORM–I

APPLICATION under section 9 of the Securities & Exchange Ordinance 1969
for ‘Listing a Security on a Stock Exchange’

To:
The General Manager
Karachi Stock Exchange (Guarantee) Limited
Karachi.

Dear Sir,

1. We hereby apply for the listing of our (Name of the Company) on your
Stock Exchange.

2. Necessary information and documents as required under Regulation 4(1) are enclosed herewith.

Yours faithfully,

__________________
Signature & Address

c.c. to:

The SECP
ISLAMABAD
(as required under Sub-Section (1) of Section 9 of the Securities & Exchange Ordinance, 1969)

2. The Exchange decides the question of granting permission within 03 months (at max) from the date
of receipt of application. If permission is refused, reasons of such refusal are communicated to the
Applicant and SECP within 02 weeks of the decision.

3. The BOD of the Exchange is the sole authority to grant, defer, or refuse such permission. For this
purpose, the Board may relax any of these regulations by passing a resolution. The resolution shall
be passed by two-third (67%) majority of the directors present at such meeting of the Board.
(Regulation 3)

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4. The application for listing shall be made by the applicant company and prescribed documents (as
given in Annexure-I) shall be submitted along with it.

5. The Board may require additional documentation (eg, declarations, affirmations, etc).

6. If application is not submitted properly, the Board may defer its consideration or decline to consider
it. If application is declined, the applicant may move a fresh application after 06 months from the
date of such declination. In other words, once an application is declined, the company may not be
listed for 06 months (at least).
(Regulation 4)

Sec 9 (of Securities & Exchange Ordinance 1969): Listing of Securities

Listing of securities is of two types:

Voluntary Listing: It is done by the issuer through an application to the stock exchange (Sec 9).
Compulsory Listing: It is done by SECP in the public interest (Sec 10).

An issuer shall make an application to the Stock Exchange for the listing of its security. A copy of
such application shall be submitted to SECP. On such application, the Stock Exchange may list the
security.

If the Stock Exchange refuses to list a security, SECP may direct it to list the security. SECP may give
this direction on its own motion or on the petition of the applicant (within prescribed time). Before
any such refusal, the Stock Exchange shall provide the company an opportunity of being heard. (Sec
9.9)

Where, after the listing of a security, SECP or Stock Exchange finds a material deficiency in the
application, or issuer’s non-compliance of any condition, then SECP or the Stock Exchange may:
 Require the issuer to correct the deficiency (within the specified time); or
 Revoke the listing.

Before making the order of revocation, SECP or Stock Exchange shall provide an opportunity of
being heard to the company. (Sec 9.9)

If issuer intends to delist a security, it shall submit an application to the Stock Exchange. The Stock
Exchange may then delist the security. If it refuses to delist, then SECP may direct it to delist the
security. SECP may give such direction only on the petition of the applicant.

SECP or the Stock Exchange may suspend the trading of any listed security for a period up to 60

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days, if:
 It is in the public interest to suspend the trading; or
 It is in the interest of the trade.

This suspension may be extended (on the basis of written reasons) for further periods not exceeding
60 days at any time.

Please refer to this link for an order of SECP passed for suspension of Trading:

http://www.ise.com.pk/InterISE%5CFiles/Circulars/2011/2012-197.PDF

Good to Know:

In Regulation 3 above, we have seen that the Exchange sends a copy of ‘reasons of refusal’ to SECP
when it refuses the permission of dealings in a security. This is so because the Company sends a copy
of application of listing to SECP. So, the Exchange also keeps the SECP informed about the decision
on such application.

Since SECP may direct the Exchange to list a security (in accordance with Sec 9 of S&E Ordinance
1969, it seems that the ‘BOD of the Exchange’ is NOT the sole authority to grant, refuse, or defer the
permission / listing.

Undertaking:

For listing of a company or a security, the Applicant Company has to make 2 undertakings:

1. Undertaking to abide by the KSE Regulations; and

2. Further Undertakings

(a) Quoting, Removing, Suspending, De-listing a security;

(b) The overriding power of KSE Regulations.

2(a) Quoting, Removing, Suspending, De-listing a security;

 It is the discretion of the KSE to quote the company’s securities on Ready Quotation Board (RQB) or
the Futures Counter (FC). (Regulation 2.i)

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 If the company requests the KSE to remove its securities from RQB or FC, KSE is not bound by such
request. (Regulation 2.ii)

 KSE has the right to suspend or remove any shares or securities from the RQB or FC considering the
public interest. (Regulation 2.iii)

 If the company commits non-compliance or breach of these Undertakings, the security or the company
may be de-listed by the BOD of KSE. (Regulation 2.v)

2(b) The overriding power of KSE Regulations;

 If the provisions of the AOA or any Declaration of the company are not in conformity with these
Regulations, the BOD of KSE shall order the company to amend such provisions. And these Regulations
shall be deemed to supersede those contradictory provisions. (Regulation 2.iv)

F O R M – II

FORM OF UNCONDITIONAL UNDERTAKING UNDER LISTING REGULATION NO. 5
ON NON-JUDICIAL STAMP PAPER OF RS. 20/-

Dated: _______________

The Governing Board of Directors
Karachi Stock Exchange (Guarantee) Limited
KARACHI.

UNDERTAKING

We undertake, unconditionally, to abide by the Listing Regulations of the Karachi Stock Exchange
(Guarantee) Limited which presently are, or hereinafter may be in force.

We further undertake:

1. That our shares and securities shall be quoted on the Ready Quotation Board and/or the Futures Counter at
the discretion of the Exchange;

2. That the Exchange shall not be bound by our request to remove the shares or securities from the Ready
Quotation Board and/or the Futures Counter;

3. That the Exchange shall have the right, at any time, to suspend or remove the said shares or securities for
any reason which the Exchange considers sufficient in public interest;

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4. That such provisions in the articles of association (AOA) of our company or in any declaration or
agreement relating to any other security as are Not (or otherwise not deemed by the Exchange to be) in
conformity with the Listing Regulations of the Exchange shall, upon being called upon by the Exchange,
be amended forthwith and, until such time as these amendments are made, the provisions of these
Regulations shall be deemed to supersede the AOA of our company or the nominee relating to the other
securities to the extent indicated by the Exchange for purposes of amendment, and we shall not raise any
objection in relation to a direction by the Exchange for such amendment; and

5. That our company and/or the security may be de-listed by the Exchange in the event of non-compliance
and breach of this undertaking.

Yours faithfully,

_________________________ Common Seal of the Company
(Signature of Authorised Person)

OFFER OF CAPITAL BY COMPANIES / MODARABAS TO THE PUBLIC:

Size of Offer

Share Capital vs. Public Offer Share Capital ≤ Rs. 500 million Public offer shall be at least 50% of such
capital (ie at least Rs. 250 million)

Share Capital vs. Public Offer Share Capital > Rs. 500 million Public offer shall be higher of:
 Rs. 250 million;
 25% of such capital

Once size of the public offer is determined, the second step is to determine its allocation. The listing regulations
provide these limits on allocations:

Allocation to overseas Up to 20% of public offer 20%
Pakistanis

Allocation to employees Up to 5% of public offer 5%

For Modaraba only:

To be subscribed by sponsors, 30% of Total paid-up capital
or their associates or friends,
relatives and associated

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undertakings

To be offered to General 70% of Total paid-up capital
Public

1. The following allocations of shares shall have restrictions on them.

 Allocation of shares to sponsors in excess of 25%; and

 Allocation of shares under Pre-IPO placement, including employees of the company or group
companies.

These shares shall not be saleable for a period of 06 months from the date of public subscription.

2. Where the shares of the company are issued /offered through book building, it shall comply with the
requirements as set out in Appendix 4 of these Regulations.

3. KSE may relax any requirement contained in these regulations. But it has to take prior approval of SECP
for relaxing any requirement.

Pre-conditions for Listing:

A company may be listed on KSE only if:

(a) The company is registered as a Public Ltd Company under the Companies Ordinance 1984 or set up
under a statute; (Reg 7.1)

(b) The company has paid up capital (including public offer) of Rs. 200 million or more;

(c) Public issue made by the company is subscribed by at least 500 applicants; (Reg 7.2)

(d) The company has provided an undertaking on Form – II. (Reg 5.1)

If ALL of these conditions exist, the company is eligible to be listed. Then, there are only some
formalities (eg, submitting applications, paying fees, etc) to get listed. Please note that “condition (c)” is
related also to Regulation 6 which contains provisions about the “size of public offer”. Besides these
conditions, the criteria & guidelines contained in Appendix-2 shall also be met for becoming eligible
for listing.

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The requirements in (a) and (b) above shall apply only to listing of shares. However, these requirements
may become applicable for other securities if any law so requires, or the Federal Govt so directs.

PROSPECTUS, ALLOTMENT, ISSUE AND TRANSFER OF SHARES

1. For any prospectus, the company needs to:

(a) Obtain “Clearance” of the Stock Exchange (as required by these Regulations); and

(b) Obtain “Approval” of SECP (as required by Sec 57 of the Companies Ordinance 1984)

2. After preparing prospectus, the company sends it to the Stock Exchange for Clearance. After satisfactory
review, the Exchange issues Clearance to the company. However, the Exchange may require the
company to include additional documents, information, etc in the prospectus before issuing the
Clearance.

3. After obtaining Clearance from the Stock Exchange, the company submits the following to SECP:
 Application for approval of prospectus;
 The prospectus; and
 Clearance issued by the Stock Exchange.

4. After approval of SECP, the Prospectus and the Application Form shall be published by the company in
at least one widely circulated English and Urdu daily newspaper each at Karachi, Lahore and Islamabad
at least 7 (seven) days in advance but not more than 30 (thirty) days before the date of the opening of
subscription list. However, the Exchange may require the company to publish Prospectus and
Application Form in some other cities also. (Reg 8.4 and Sec 53.2 of CO 1984)

In other words, if a company publishes a prospectus, it has maximum 30 days to open the subscription
lists. However, it shall not open the subscription lists within 07 days after publishing the prospectus. By
this provision, the law and the regulations have provided a time of 07 days to the investors / public to
subscribe for shares. If this provision was not added in law, a company may publish a prospectus today
and open the subscription list tomorrow, thereby allowing no time to the General Public to subscribe for
shares. By these actions, directors would have gained significant benefits via manipulations.

Note:

Subscription lists are opened when subscription is closed. Suppose FFC issues shares to public. The last
date of subscription is 31 March 2012. Now, the subscription is closed on 31 March 2012. So,
subscription lists shall be opened on any subsequent day. These lists show the details of applicants who
submitted applications for shares (eg, Name, Application #, Amount received, etc)

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Good to Know:

Sec 53 of the Companies Ordinance 1984 is relevant here. As per Sec 53.2, SECP may allow the
company to publish prospectus more than 30 days before the opening of subscription lists.

5. Applications shall be accepted only through the bankers to the issue whose names shall be included in
the prospectus.

6. The company shall submit printed copies of the prospectus to the bankers-to-the-issue and the
Exchange. The quantity of the copies shall be determined by the Bankers and the Exchange respectively.

7. The directors or the Offerers, as the case may be, shall NOT PARTICIPATE in subscription of shares
offered to the general public.

8. The share certificates shall be issued in such marketable lots (or in any other manner) as may be
determined or approved by the Exchange. (Reg 8A)

9. The application money shall be refunded, within such time as is prescribed in regulation 9(4), if:
 the company is not listed on the Exchange (for any reason whatsoever); or
 the listing is refused. (Reg 8B)

Refund of money & allotment of shares: (Regulation 9 and 8A)

1. Now when the subscription is closed, the company shall inform the Exchange about the subscription
received within 05 working days. This information is provided to the Exchange along with a
“Certificate” from the Bankers-to-the-issue as a proof.

2. After closure of subscription list, the company has to take a decision within 10 days about which
applications have been accepted. The company shall refund the money to unsuccessful applicants within
10 days of such decision. (Please note that “Days” are mentioned here, so it seems that 10 days mean 10
days; it does not mean 10 Working days)

3. In case of over-subscription, the company (or the offerers) shall immediately submit to the Exchange
copies of the ballot register of successful applications.

4. The company shall despatch all shares certificates, in marketable lots, within 30 days of the closing of
subscription list to all the successful applicants under intimation to the Exchange. (Reg 9.6 & 8A)

Exception:

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If the security is declared to be ‘eligible security’, the company shall deposit the share certificates
directly into the CDS. In such case, share certificate shall not be sent to the Registered Address of the
applicants in the form of physical certificate.

5. If the listing of the company is refused, the company has to immediately refund money. However, the
compay has 15 days as a period of grace. From the 16th day, it shall refund the money plus surcharge @
1.5% per month for each day (in excess of 15 days).

Note:

Closing of subscription:

Subscription is closed at the end of the last date by which share applications can be submitted.

Closure of subscription lists:

When subscription is closed, subscription list is opened. This list(s) contains the particulars of the applicants
& money received, etc. Closure of subscription list normally takes 2-4 days.

Requirement of Regulations Requirement of Companies Ordinance

1 To inform the Exchange Within 05 working days from the N/A
about subscription closing of subscription
received (Reg 9.1)

2 To take decision about Within 10 days from the closure of Same as in Regulations
successful applications subscription lists
(Reg 9.2)
3 To refund money to the Within 10 days from the date of Same as in Regulations
un-successful applicants decision
However, if the company fails to refund the
(Reg 9.3) money within 10 days, the directors shall be
liable to refund the money plus surcharge
@ 1.5% per month, from the end of 15th
day. (Sec 71)

It seems that the surcharge is applicable
from the 16th day but, if refund is not made
within 10 days, the directors shall become
liable (not the company) to refund money
from 11th day. They shall be liable to refund
only money from 11th – 15th day. From 16th

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day, they shall also become liable for
surcharge.

4 To refund money to Refund money forthwith. However, Money becomes repayable if:
‘ALL’ applicants in case 15 days are allowed to refund
the listing is refused money without Surcharge. From 1. The company has not applied for
16th day, refund money plus permission within 06 days after first
surcharge @ 1.5% per month issue of the prospectus; or

(Reg 9.4) 2. Permission was not granted within 21
days from the closing of subscription
lists; or

3. Permission was not granted within 42
days from the closing of subscription
lists (in case that the Stock Exchange
intimated the company, within 21 days
after closing of subscription lists, that
the Application shall be given further
consideration)

Money shall be repaid forthwith but a
period of 08 days is allowed from the date
of any of the above events. From the 9th
day, directors shall become liable to refund
money plus surcharge @ 1.5% per month
for each day (after the 8th day).
(Sec 72)

5 Over-subscription Submit to the Exchange copies of N/A
the Ballot Register of successful
applications.

(Point 2 & 3 above are related to (Point 2 & 3 above are related to this.
this. Obviously, when there is under- Obviously, when there is under-
subscription, the company has no subscription, the company has no need to
need to determine which determine which applications are
applications are successful. In that successful. In that case, all applications will
case, all applications will be be accepted.) (Sec 71)
accepted.)

(Reg 9.5)

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6 Despatching share Within 30 days from the closure of
certificates subscription list
+
Send intimation to the Exchange

(Reg 9.6)

7 Minimum subscription No requirement. Minimum subscription is to be raised;
otherwise, the company shall repay the
However, if the issue is not money to the applicants.
subscribed by at least 500
applicants, the listing may be This requirement is applicable for the “first
refused. And when listing is refused, issue to the public”. Not applicable for
the company has to repay money to subsequent issues. (Sec 68.7)
‘ALL’ applicants. (Refer to point-4
above)

8 Keeping money in a N/A Money is to be so kept.
separate bank account
with a scheduled bank It is applicable only for first issue to the
public.

9 Effect if irregular N/A Any irregular allotment shall be voidable at
allotment the option of the applicant within 30 days
from the holding of Statutory Meeting (or
from the date of Allotment, as the case may
be). (Sec 70.1)

10 Payment of brokerage The company shall pay to the N/A
members of the Exchange at the The company has power to pay such
minimum rate of 1% of the value of brokerage that is lawful for a company to
the shares actually sold through pay. But brokerage shall not exceed:
them. The brokerage shall be paid
within 30 days from the closing of 1. 1% of the price at which shares (or
subscription lists. debentures) issued have been actually
(and not merely) sold through the
(Reg 10) broker; or

2. such other rate per cent as may be
specified by SECP, generally or in a
particular case.

(Sec 82.3)

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Allotment Letters (AL), Letters of Right (LOR), and Certificates: (Regulation 11)

The “Allotment letters” and the “Letters of right” may be split. However, they shall be split into marketable
lots only. On the other hand, the certificates of securities (eg, share certificates, or debenture certificates)
may be split or consolidated.

AL or LOR Security certificates
1 Splitting / consolidation They may be split (not consolidated) They may be split (or consolidated) into
into marketable lots. (Reg 11.1) marketable lots. (Reg 11.2)

2 Time limit for splitting / Within 07 days from the date of Within 30 days from the date of receipt of
consolidation receipt of application. (Reg 11.1) application. (Reg 11.2)

3 Non-marketable lots They may not be split into non- They may be split into non-marketable lots.
marketable lots. However, for this purpose, the company
may charge a fee from the applicant, which
shall not exceed Rs 100/- per certificate.
(Reg 11.2)

The applicant (or the holder of security) submits an application to the company. The company then splits or
consolidates the underlying securities / letters.

These requirements (as in Regulation 11 above) shall not apply where the security has been declared an
eligible security and held in the name of CDC. In such cases, the procedure as prescribed by the CDC shall
be complied with.

Transfer of shares: (Regulation 13 and Sec 76)

The shareholder shall make an “Application” to the company for the “Transfer & Registration” of Shares.
The company shall verify the signs of both shareholders (the Transferee and the Transferor) within 48 hours
of that request / application.

Within 45 days of such application, the company shall:
 Complete the ‘Share Transfer’; and
 Make ready for delivery the share certificates lodged with it for ‘Registration of transfer’.

This regulation shall not apply in case of eligible securities deposited into the CDS. In such cases, the
procedure as prescribed by the CDC shall be complied with.

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Listing Regulations Companies Ordinance

1 Making application for Not specified. It may be made by the Tranferor or the
Transfer Transferee. (Sec 76.1)

2 Documents required with Not specified. Stamped ‘Instrument of Transfer’ signed by
the application the Transferor & Transferee
+
Scrip
(Sec 76.1)

3 Alternative way of Not specified. Where transfer deed is lost / destroyed, the
Transfer where Transfer Transferee may submit to the company:
Deed is lost / destroyed An application bearing Stamp
(the Stamp as required for instrument of
transfer)
to the directors of the company that the
duly executed Transfer Deed has been lost /
destroyed.
(Sec 76.2)

4 Register of Transfer of Not specified. It shall be maintained by the company and
Shares & Debentures kept at its Registered Office.
(Sec 76.4)

Share Transfer Books: (Regulation 14 and Sec 151)


1 Books closure notice for The company shall give at least 14 A company (public or private, any
companies quoted on days notice to the Exchange before company) may close the Register of
Ready Quotation Board closure of “Share Transfer Books” Members / Debenture-holders by giving a 7
for any purpose. (Reg 14.1) days prior notice by advertisement in a
(Books mean newspaper. (Sec 151)
Register of members /
debenture-holders (See the Special Requirement in respect of
+ Listed Company, ie publishing notice in
Transfer books) additional newspapers)

2 Books closure notice for The company shall give at least 21 Same as above.
companies quoted on days notice to the Exchange before
Futures Counter closure of “Share Transfer Books” (See the Special Requirement in respect of

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or any other Corporate Action. The Listed Company, ie publishing notice in
notice shall be given on or before additional newspapers)
20th of every month and the period
of notice shall begin from 21st of the
month. (Reg 14.1)

3 Time limits for book At a time: 7-15 days At a time: Up to 30 days
closure In total : 45 days per year In total : 45 days per year

These are only for “Share Transfer These are only for “Register of Members /
Register”, and not for other books. Debenture-holders”, and not for other
(Reg 14.5) books. (Sec 151)

4 Transfer fee Company cannot charge any transfer N/A
fee. (Reg 14.4)

5 Lien on shares No listed company shall exercise N/A
any lien whatsoever on fully paid
shares and nor shall there be any
restriction on transfer of fully paid
shares. This shall apply to “ALL”
listed ‘Securities’. (Reg 15)

The company shall treat the date of posting (ie, date on which documents are posted to the company) as the
date of lodgment of shares for the purpose for which shares transfer register is closed, provided that the
posted documents are received by the company before relevant action has been taken by the company.

The company shall issue transfer receipts immediately on receiving the shares for transfer.

DIVIDENDS AND ENTITLEMENTS

Dividends: (Regulation 16 & 19, and Sec 248-251)

1. It is the responsibility of every “Listed Company” and “Issuer of a Listed Security” to communicate to
the Exchange all of its BOD decisions relating to:
 Cash dividend;
 Bonus issue;
 Right issue;
 Any other entitlement or corporate action; or
 Any other ‘Price Sensitive Information (PSI)’. (Reg 16.1)

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The intimation of these decisions shall be sent to the Exchange at least 14 days prior to the
‘Commencement of Book Closure”. (Reg 16.5, See Reg 14.1 also)

2. These decisions shall be first communicated to the Exchange and then to any other person or media.

3. Rumors / Enquiry:

For a ‘Listed Company’:

If a “Listed company” becomes aware of any rumor or other PSI that contains material information and
which could affect (i) Market Price of Listed securities; or (ii) Trading volume; the company should
clarify such rumor or PSI.

The clarification is done by confirming or denying the information. The company should provide the
facts to the Exchange. This information / clarification shall be provided within 01 day of the publication
/ broadcast of rumor.

For ‘Issuer’ of a listed security:

If Exchange enquires from Issuer about any ‘Unusual Movements’ in the (i) Price, or (ii) Trading
Volume, of its listed securities (or any related matter), the Issuer shall promptly provide clarification of
the matter.

Company / Issuer CEO / CFO
1 Penalty if financial Rs 100k – Rs 1 M N/A
results or PSI are not
provided ‘Timely’

2 Penalty if financial N/A Rs 100k – Rs 1 M
results are not provided
‘Accurately’


1 Despatch of Interim Within 30 days from the date of Not specified.
Dividend Warrants Commencement of Closing of
Share Transfer Books for the
purpose of determining dividend
entitlement.
(Reg 19.1.i)

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2 Despatch of Final Within 30 days from the date of Not specified.
Dividend Warrants General Meeting (GM) in which
such final dividend is approved.
(Reg 19.1.ii)

3 Intimate the Exchange Immediately after posting ALL the Not specified.
about posting of warrants
dividend warrants to the
shareholders

4 Means of dispatch of Registered post Registered post
warrants (or as required otherwise by the (or as required otherwise by the
shareholders) shareholders)
(Sec 250.3)
5 Encashment of dividend At the ‘Place of the Registered Not specified.
warrants Office’ of the issuing company;
and
At Karachi, Hyderabad, Sukkur,
Quetta, Multan, Lahore,
Faisalabad, Islamabad, Rawalpindi
and Peshawar. (Reg 19.2)

6 Period for encashment 03 months from the date of issue. Not specified.
(Reg 19.2)

7 Penalty for default Monetary: No penalty for company. The penalty is
only for CEO.
Rs 5,000 fine for every day of
default to the company. Monetary:

Non-monetary: Up to Rs 1 M.

Notifying the name of the company Non-monetary:
in the publications / daily
quotations.  Up to 02 years imprisonment.
 Loss of current office from the date of
Suspending the listing of company; conviction.
 05 years Ban on becoming CEO or
De-listing the company. director of any company.
(Reg 16.3-4) (Sec 251.2-3)

8 Dividend to be paid out Not specified. Dividend shall be paid only out of profits
of profits of the company. (Sec 249)

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9 No dividend from: Not specified. Dividend from the profits from disposal
 the profit on disposal; (of PPE or other capital assets) can be paid
or only if it is the normal business of the
 Un-realised gains on company, or if all other losses are set off
Investment Property against such profit.
(IAS-40)
Dividend cannot be paid out of ‘un-
realized gain on Investment Property.
(Sec 248.2)

10 Responsibility to ensure Company CEO (Sec 251.1)
payment of dividend

11 Time for payment of Not specified directly. As prescribed by SECP. (Sec 251.1)
dividend
However, it is provided that the Prescribed period:
dividend warrants are to be issued
within 30 days of declaration of  Listed company: 45 days.
dividend, and they are encashable  Any other company: 30 days
for a period of 03 months from the from the date of declaration of dividend.
date of issue.

So, in total, a period of 04 months
is allowed to the company for
payment of dividend.

Note:

This Regulation of KSE seems
“Inconsistent” with the
Companies Ordinance 1984.

12 Authority to declare Not specified. Company (in a general meeting) (Sec
dividend 248.1)

Directors (Explanation to Sec 251.1)

13 Authority to recommend Not specified. Directors (Sec 248.1)
the amount of dividend

14 Parties to whom Not specified.  Registered shareholders; or
dividend is to be paid  Their order; or
 Their Bankers / financial institution.
(Sec 250)

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15 Deferring the payment Not specified. The payment of dividend to the
of dividend shareholders may be deferred after taking
Since 04 months period is allowed, the prior Permission of SECP on the basis
so there is no question of deferring of any of the reasons mentioned in Sec
the payment. 251.2.

Transactions by Beneficial Owners / Beneficial position-holders: (Regulation 16.6 & Sec 222)

Where any director, CEO, or executive of a listed company or their spouses:

 Sell the shares of Listed Company (whether directly or indirectly); or
 Buy the shares of Listed Company (whether directly or indirectly); or
 Take any beneficial position in shares of the Listed Company (whether directly or indirectly);

of which he / she is a director, CEO, or executive (as the case may be), he / she shall immediately notify
in writing to the Company Secretary.

Such director, CEO or executive, as the case may be, shall also deliver a written record of:
 the price,
 number of shares,
 form of share certificates, (ie, physical or electronic within the Central Depository System), and
 nature of transaction,

to the Company Secretary within four (04) days of effecting the transaction.

The Company Secretary shall immediately forward the same to the Exchange for its dissemination to all
concerned. (Regulation 16.6)

Relevant:

Executive:

As per 4th Schedule of the Companies Ordinance 1984, "Executive" means an employee (other than
the CEO and directors) whose basic salary exceeds Rs. 500,000/- in a financial year.

1 Parties It applies to: It applies to:
1. Directors, 1. Directors,

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2. CEO, and 2. CEO,
3. Executives, 3. Managing Agent,
of a listed company. 4. CFO (Chief Accountant),
(Reg 16.6) 5. Company Secretary,
6. Auditor, and
Note: 7. Any other person who is (directly or
It is pertinent to note that in large indirectly) the beneficial owner of more
companies, Company Secretary & than 10% of equity securities,
CFO etc come in the definition of of a listed company.
‘Executive’ (as their salaries are (Sec 222.1)
lucrative). So, they are automatically
covered in the Listing Regulations.
However, in small companies, this
may not be the case.

2 Other parties in scope The spouses of the above-mentioned No other parties are in scope.
parties shall also be in the scope of
this Regulation. If their spouses sell, However, if the above-mentioned parties
buy, or take a beneficial position in, exercise short-selling indirectly (ie, via
the shares of the Listed Company, minor children or spouses), they shall be
then they (ie, the Directors, CEO, liable for the consequences of those indirect
etc) have to submit the record of transactions.
their spouses’ transactions, etc. (Sec 223)

3 Submission of If any director, CEO, or Executive Every director, CEO, managing agent,
Records, Statements, of a Listed Company, or their CFO, secretary, or auditor of a listed
etc. spouses: company who is (or has been) the
1. sell or buy the shares of that beneficial owner of any of its equity
Listed Company (directly or securities,
indirectly), or and
every person who is (directly or indirectly)
2. take any beneficial position in the beneficial owner of more than 10% of
the shares of that listed company such securities,
(directly or indirectly),
shall submit to the Registrar SECP, a
then, the said director, CEO, or Return (in the prescribed form) containing
Executive, shall immediately notify prescribed particulars pertaining to the
(in writing) to the Company beneficial ownership of such securities.
Secretary. He shall also deliver the
written record of Price, no. of If there is any change in the beneficial
shares, form of share certificates (ie, interest, then he shall Notify the particulars
physical or electronic), and nature of of such change in the prescribed form.
transaction to the Company
Secretary within 04 days of effecting (Sec 222.1)
the transaction.

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(Reg 16.6)

4 Trading by Directors, No requirement. If any of the above parties make a GAIN
Officers, and Principal by the sale & purchase (or purchase &
shareholders, etc. As said above, they shall submit a sale) of any listed equity security of the
written record of Trading in shares, company, within a period of less than 06
to the company secretary. months, he shall:
1. make a Report to the company,
2. tender the amount of Gain to the
company, and
3. simultaneously send an intimation to
this effect to the Registrar and SECP.

These requirements shall not apply to a
security acquired in good faith in
satisfaction of debt previously contracted.
(Sec 224.1)

Submission of Accounts & Reports: (Regulation 17-18, and Sec 230, 233, 245)

1 Sending Annual Every listed company and issuer of Listed company shall send 05 copies of the
Accounts & Reports to listed security shall send to the Accounts, Audit Report, and Directors’
the Exchange / SECP Exchange its quarterly and annual Report to SECP, Registrar, and Stock
‘before the General financial results. (Reg 17) Exchange, at least 21 days before the
Meeting’ meeting of the members at which these are
The company shall send Statutory to be considered. (Sec 233.4-5)
Report, Annual Report, and
Audited Accounts to the Exchange
at least 21 days before the meeting
of the shareholders at which these
are to be considered. The no. of
copies shall be prescribed by the
Exchange. (Reg 18.1)

2 Sending Annual Not specified. For Listed Company:
Accounts & Reports to
the Exchange / SECP Listed company shall file with the Registrar
‘after the General at least 03 copies of the Accounts, Audit
Meeting’ Report, and Directors’ Report. These shall
be the signed copies, and they shall be
signed by the CEO, Directors, Chairman of

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BOD, or the Auditors of the company (as
the case may be). These shall be filed
within 30 days from the date of such
meeting.

For any other Company:

All other requirements are same. The no.
of copies is at least 02 (instead of 03).
(Sec 242.1)

However, these are not mandatory for a
Private Company whose share capital is
less than Rs. 7.5 million.
(Sec 242.3)

3 Sending Notices, The company shall send to the Copy of every Special Resolution
Resolutions to the Exchange: (authenticated by CEO and Company
Exchange / SECP Secretary) shall be filed with the Registrar
Copies of all Notices and within 15 days of passing of such
Resolutions prior to their resolution.
publication and despatch to the
shareholders; and

Certified copies of all such
resolutions as soon as these have
been adopted and become
effective. (Reg 18.2)

4 Sending Quarterly The company shall send its Every Listed company shall send its
Accounts to the Quarterly Accounts to the Quarterly Accounts to the Exchange &
Exchange Exchange within the time members within 01 month of the close of
stipulated under the Companies such quarter. The no. of copies is not
Ordinance (ie within 01 month of specified. (Sec 245.1.a)
the close of such quarter). The no.
of copies shall be prescribed by the And at least 03 copies of these accounts
Exchange. (Reg 18.3) shall also be filed with the Registrar &
SECP within the same time.
(Sec 245.1.b)

5 Signing of Accounts Not specified. Annual Accounts:

Annual accounts shall be signed by the
CEO and 01 Director; or

Page 23 of 55


At least 02 Directors who are present in
Pakistan (in case CEO is not in Pakistan)
(Sec 241)

Half-yearly Accounts:

Same as for Annual accounts.

Quarterly Accounts:

No requirement.

(Sec 245.2)

Annual General Meetings / Annual Review Meetings, Etc

1 Annual General Meeting Compulsory (Reg 20.1) Compulsory (Sec 158)
(AGM) requirement

2 Period within which Within 04 months from the year- First AGM:
AGM is to be conducted end of the company. (Reg 20.1)
Within 18 months from the date of
incorporation.

Subsequent AGMs:

To be conducted in every calendar year.

Within 04 months from the year-end of the
company; but

Not more than 15 months from the date of
its previous AGM.

Example:

Suppose, RA Ltd conducted its 2nd AGM
on 30 April 2011 (ie, within 4 months of
the year-end date 31 Dec 2010). Now, for
AGM of 2012, the company has these
limits:

Page 24 of 55


 Till 30 April 2012 (ie, within 4 months);
OR
 Till 31 July 2012 (ie, within 15 months
from the previous AGM).

It is clear that the 15 months limit is the
upper limit (the maximum limit). So, the
company (RA Ltd) may hold its AGM till
31 July 2012.
(Sec 158.1)

However, when we read Sec 233.1 of the
Companies Ordinance, it says that a
company has to prepare its Annual
Accounts from last balance sheet date up to
a date not-earlier-than the date of AGM by
more than 04 months. In other words, it
means that a company has to conduct an
AGM within 04 months (at max) of the
balance sheet date, except where extension
of 1 month is granted.

On the other hand, Sec 233.2 provides that
the period of Accounts shall not exceed 12
months. But Registrar may permit this for
some special reason (eg, to match the year-
ends with Tax Year or Holding Company’s
Year, etc).

Now, if we consider Sec 158 and Sec 233
simultaneously, there is significant
confusion. (See “Good to know” section
below for illustration)

3 Extension in AGM time The Exchange does not grant For Listed company:
extension itself. However, if
extension is granted by SECP, the SECP may grant extension up to 30 days.
company has to notify this fact to
the Exchange by sending a copy of For any other company:
SECP’s approval letter within 48
hours of receipt of such letter. Registrar may grant extension up to 30
(Reg 20.1 proviso) days.
(Sec 158.1 proviso)

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4 Place to hold AGM Not specified. For Listed company:

However, all Listed Companies To be held in the town in which Registered
have to take prior “approval” of the Office of the company is situated.
Exchange in respect of date & time
of AGMs. (Reg 28.1) However, SECP may allow the company to
hold its AGM at any other place.
(Sec 158.2)

5 Minutes of meeting The company shall furnish certified Every company has to keep minutes of the
true copies of minutes of its AGM following meetings:
and of every EGM to the Exchange  General meetings;
within 60 days of such meeting.  Meetings of the BOD; and
(Reg 21.1)  Meetings of any Committee of the
BOD.
(Sec 173.1)

6 List of security-holders The company shall furnish a Not specified.
complete list of all its security-
holders as at 31st December in
every calendar year. The list shall
be submitted within 30 days from
year-end (ie, till 30 Jan).

The list shall be affirmed to be
correct and up-to-date as at 31 Dec.
(Reg 21.2)

7 Information about ‘free Every Listed Company or issuer of Not specified.
float shares’ Listed Security shall submit:
 the number; and
 break-up;
of its free float shares on quarterly
basis (ie at end of March, June,
Sep, Dec).

This information shall be submitted
within 15 days of the end of each
quarter.
(Reg 21.3)

8 Annual Review Meeting Each Modaraba shall hold an ARM Not specified.
(ARM) of its certificate-holders within 04
months from its year-end.

Page 26 of 55


It shall present its financial
statements before such meeting.
(Reg 20.1.i)

Good to Know:

AGM and Accounts: (Sec 158 and Sec 233 of Companies Ordinance)

A Power Generation Company (the company), a public unlisted company, has 30th June as its financial year-
end. The company filed a “True-up Petition” before NEPRA for the revision of its tariff rates in November
2011. The decision of NEPRA about Tariff Revision is pending, and it is now 30th June 2012. As per Sec 158,
the company has 4 months to conduct its AGM till 31 October 2012. It conducted its last AGM on 15th Oct
2011.

Since the Revision of Tariff by NEPRA would enhance the company’s revenue (as well as profits), the
company wants to delay its audit so that the decision of NEPRA is finalized before audit, and it could recognize
additional revenue in the year ended 30 June 2012 (in respect of the electricity units sold during July 2011 to
June 2012). According to the Auditors, if NEPRA decision is pending till Audit Report, the recognition of
additional Revenue would be inappropriate.

Thus, the company wants to take extension in holding its AGM and to start the audit late. As per Sec 158, it
may take extension of 1 month from Registrar. So, it seems us that AGM could be held till 30 Nov 2012 after 1
month extension.

Now, Sec 233 says that the company shall prepare its Accounts from the date of its last accounts and up to a
date not-earlier-than the date-of-meeting by more than 4 months. So, limit of 4 months is imposed. It means if
company wants to hold AGM on 30 Nov 2012, the Reporting date of its Accounts (for the year 2012) would be
31 July 2012 or any onward date (because in this case the gap between Reporting Date and the date of AGM
would not exceed 4 months). So, it seems that the company would prepare its Accounts for 13 months period in
this year (1 July 2011 to 31 July 2012).

Here comes Sec 233.2, it says that the period of Accounts shall not exceed 12 months (except with the Special
Permission of Registrar). Now if company prepares Accounts for 13 months this year, its comparatives for this
year and the comparatives in next year would be distorted. We assume that the company does not want to
change its year-end. So, in essence, it seems that when a company takes extension in holding AGM, it also
takes extension for preparation of Accounts (such that the period from the date of AGM and its Year-end may
exceed 4 months).

To summarize, we see that AGM is extended by 1 month; that AGM is to be held within 4 months of the
Reporting Date; and that Period of Accounts cannot exceed 12 months.

So, we conclude that the period of holding AGM is just 4 months from the date of AGM in normal cases. But
in some special cases (like, to match year-end of subsidiary and holding, etc), relaxation may be allowed.

Page 27 of 55


Increase of Capital & Allied Issues: (Regulation 22-24, and Sec 86)

A listed company shall immediately inform the Exchange about all decision of its (ie, company’s) BOD for any
change in its Authorised, Issued or Paid-up capital. The change in capital may occur by way of:
 Bonus shares;
 Right shares; or
 Refund of capital

1 Decision of BOD to The company shall immediately Every new issue of shares shall be a Right
change capital inform the Exchange of such Issue, ie, shares shall be first offered to the
decision. (Reg 22) existing members of the company.

However, the Federal Govt may exempt
this requirement for a public company if an
application to this effect is submitted to the
Federal Govt. (Sec 86.1)

2 Time limit to issue Within 30 days from the date of re- Not specified.
‘Entitlement Letters’ or opening of “Security Transfer
‘Right Offers’ Register” of the company closed
for this purpose. (Reg 23.1)

This regulation shall not apply in
case of eligible securities deposited
into the CDS.

3 Extension in the period The company may take extension Not specified.
of further 30 days (at max).
(Reg 23.2)

Bonus Shares:

1 Time limit to issue Within 30 days from the date of re- Not specified.
‘Bonus shares’ opening of “Share Transfer
Register” of the company closed
for this purpose. (Reg 24.1)

2 Ways in which bonus Bonus shares may be issued in Not specified.
shares may be issued either of the 2 ways:

 The bonus shares shall be
credited into the respective CDS

Page 28 of 55


Accounts of shareholders
maintained with the CDC; or

 They dispatched to the
shareholders concerned by
registered post, unless those
entitled to receive the bonus
share certificates require
otherwise in writing.
(Reg 24.1.i)

3 Intimation to Exchange The company shall immediately Not specified.
intimate the Exchange as soon as
the bonus shares are credited /
dispatched to the shareholders.
(Reg 24.1.ii)

In case of eligible securities
deposited into the CDS, in addition
to the above, procedure as
prescribed by the CDC shall also
be complied with.

Listing Of Subsidiary Company & Other Matters: (Regulation 25-29C)

1. A “Listed Company” distributing shares of its unlisted subsidiary company shall get such subsidiary company
listed on the Exchange within a period of 120 days from the date of approval of such distribution by the
shareholders at a meeting of such company.

Example:

Ferozsons Laboratories Ltd (FLL) is a public listed company which has 80% holding in an unlisted public
company, BF Biosciences Ltd (BFL). Suppose that FLL’s shareholders approve in AGM on 31 Aug 2011 that
shares of BFL shall be distributed (in any form). Now, FLL has to get BFL listed within 120 days from 31 Aug
2011 (ie, BFL is to be listed till 29 Dec 2011.

2. The distribution of shares may be in any of these forms:
 Specie dividend (ie, Stock Dividend);
 Right shares (or Right issue); or
 Any similar distribution. (Regulation 25.1)

Page 29 of 55


Good to Know:

1. We know that “Right Issue” is made by the company to its existing shareholders. The Right
Issue may be made on some price or for free. If any issue is made free, it is called “Bonus
Issue”. And Bonus Issue is generally made to the existing shareholders, and not to the public. In
case of Right Issue, offer is made to existing shareholders and, if they decline, the shares are
offered to others (ie, outsiders, which may be institution / public).

It is obvious that Holding Company has control over financial & operating policies of the
Subsidiary. So, if any Right Issue is made by the Subsidiary, it is actually made by the Holding
Company (indirectly).

In the Regulation 25.1, KSE says that if Holding Company distributes shares of its subsidiary
“in the form of Right Shares”, the Holding has to get its subsidiary listed on KSE.

We see that “Right Issue” is not a distribution. And if it is assumed to be a “distribution”, should
we call any issue of shares by the Subsidiary to be a ‘distribution by Holding’? Obviously, it is
not the case because Companies Ordinance 1984 does not contain any such provision. So, in our
view, the Regulation 25.1 should include the words “Bonus shares” instead of “Right shares”.

3. If shares are distributed and the Subsidiary (BFL) is not listed (either due to refusal of the Exchange or due to the
fact that the Subsidiary did not apply for listing within 120 days), the Holding Company (FLL) shall encash the
shares within 30 days:

 From the expiry of 120 days; or
 From the date of refusal of listing.

whichever is earlier.

4. They shall be encashed at the higher of:

 Face value (FV); or
 Current Breakup value (ie, Net Assets / No. of shares)

5. If the Holding Company (listed company) fails to encash the shares, the Board of KSE shall:

 Suspend the trading in the shares of the listed company; or
 De-list the company. (Regulation 25.2)

Page 30 of 55


Amendment in MOA or AOA:

6. For any amendment in MOA or AOA of any company, the approval of its shareholders (members) is required in
the form of a Special Resolution, under the Companies Ordinance. However, in case of a listed company, a prior
“Clearance” from the Exchange is also required. So, the listed company has to obtain prior Clearance of the
Exchange for any “proposed amendment” in its MOA or AOA. (Regulation 26)

Board Meetings (ie meetings of BODs of the listed companies):

7. Every “listed company” and “issuer of listed security” shall notify to the Exchange, the date, time and place of its
board meeting specially called for consideration of its quarterly and annual accounts or for declaration of any
entitlement for the security holders.

The Exchange shall be notified at least 01week in advance of the date of meeting. (Regulation 29)

Issue of PTCs:

8. The company shall:

(a) Notify the Exchange about its decision to issue PTCs (Participation Term Certificates) and the purpose of
issuing TFCs;

(b) Submit a copy of the “Application made to Authorities” with relevant details and certified copy of the
Consent Order.

(c) All material particulars of the PTCs, including:

 conditions governing the issue;
 details of guarantee / securities and trustees; and
 name of the subscribing institution(s). (Regulation 27)

Quality of Audit

“Quality of Audit” includes the provisions about:
 QCR of ICAP;
 Some eligibility criteria for the auditors of listed companies;
 Professional misconduct; and
 Prohibited services;

1. Listed companies shall facilitate QCR conducted by ICAP, and shall authorize their auditors to present their
Working Papers for QCR.

2. A listed company shall not appoint or continue to retain (the following persons) as an auditor:

(a) The person who is engaged by the company to provide prohibited services;

Page 31 of 55

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