ISLAMABAD, Feb 11: After consultations with the stake-holders and market players, the Securities and Exchange Commission of Pakistan (SECP) has finalised the draft Issue of Commercial Papers Regulations, 2013, which are aimed at promoting corporate debt market and to facilitate the corporates to raise funds from capital market through the issue of Commercial Papers (CPs).

The draft regulations are an up-gradation of the guidelines for the Issue of Commercial Papers issued by the SECP on Oct 28, 2002. Currently, there are a total of 33 Commercial Papers which have so far been issued in aggregate amounting to Rs16 billion.However, there were shortcomings in the guidelines besides these lacked regulatory powers of the Commission. The new regulations would enable the SECP to enforce and oversee required legal options on issuers of CPs.

“Besides there were many clauses in the SECP guidelines that were in contrast with the prudential regulations issued by the State Bank (SBP),” said an official of the SECP, adding that many such lacunas have been eradicated in the Regulations. The CP is a short-term debt instrument normally issued by highly rated corporates to meet their short-term financial needs, like working capital etc.

Among the major gaps between the SBP regulations and the SECP guidelines are the duration of the short term papers, as SECP guidelines described durations of short term papers to be between one month and nine months, whereas the SBP described this period from one month to one year.

The regulations also define duties and responsibilities of the issuer, issuing and paying agent (IPA), which could be a scheduled bank, an investment finance company or a development financial institution.

Regarding the credit rating report, the current SECP guidelines recognises fresh the credit rating validation for the issuers, which are only up to two months old, whereas the SBP regulation recognises the credit rating report for one year.

The draft SECP Regulations have amended this time period to one year.

The draft Regulations have also introduced the concept of ‘Shelf Registration’ after which the issuers would be at liberty to launch the papers in different segments based on the timings, environment and requirement of the issuer.

“We will give them permission which will be valid for certain time period, the issuer can introduce one part of the scrip at the time of launch and the remaining quantity of papers could be launched some time later,” said an official of the SECP.The CP regulations stipulates the minimum conditions for issue of CPs, minimum and maximum maturity between 30 to 365 days, size, denomination, mode and procedure for issue of CPs.

Currently, separate permission is required from the SECP for the launch of every tranche of already floated commercial paper.

The CPs can be issued through private placement to persons mentioned in Section 120 of the Companies Ordinance, 1984, and notified there under or may be issued to the general public through prospectus.

In case of offer through private placement, approval of the SECP is not required; however, in case of offer to the general public, the prospectus has to be approved by the SECP under Section 57 of the Ordinance before issue, circulation and publication. The SECP has sought public opinion on the draft, which has also been placed at its website, the feedback can be submitted up to March 8.

The officials expect that after easing the process to launch commercial papers, more businesses prefer to have corporate structuring and raise money from the capital markets.