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This Chapter was updated, revised and
renumbered via the reprint of Chapter 20 as published and released by the State Bank of Pakistan (31 December 1994). CHAPTER XX SECURITIES
Section 2 of the Act defines "security" as shares, stocks, bonds, debentures, debenture stock and Government securities as defined in the Securities Act, 1920, deposit receipts in respect of deposit of securities and units or sub-units of unit trusts but does not include bills of exchange or promissory notes other than Government promissory notes. A "foreign security" is defined as a security issued elsewhere than in Pakistan and any security the principal of or interest on which is payable in any foreign currency or elsewhere than in Pakistan. For the purpose of Section 13 of the Act, the term "security" also includes coupons or warrants representing dividends or interest and life or endowment insurance policies. For the purposes of Section 13 of the Act, the term "a person resident outside Pakistan" covers a foreign national including a foreign national of Indo-Pakistan origin as also a Pakistani holding dual nationality for the time being resident in Pakistan and a company registered in Pakistan which is controlled directly or indirectly by a person resident outside Pakistan. In this connection a reference is also invited to para 2 of Chapter-XIX. There are no restrictions under the Act on import into Pakistan of any securities whether Pakistani or foreign. 3. Export of Foreign
Securities. In terms of clause(a) of sub-section 1 of Section 13 of the Act, the taking or sending of any securities to any place outside Pakistan except with the general or special permission of the State Bank, is prohibited. Persons in Pakistan who are holders of foreign securities and who wish to send such securities to banks, brokers or agents abroad for purpose of sale, transfer, etc., should apply to the State Bank through an Authorised Dealer for necessary export licence. Permission for export of such securities will be granted provided the securities are sent through an Authorised Dealer who should give an undertaking that the securities will be received back in Pakistan within a specified period or in the case of sale, the sale proceeds in foreign currency will be repatriated to Pakistan. State Bank may also consider applications for exchange of foreign shares and/or securities held by residents of Pakistan with Pakistan shares and/or securities held by residents abroad. Applications for this purpose should be made to the State Bank through an Authorised Dealer or stock and share broker. 4. Export of Pakistani
Securities. Pakistan nationals as also "persons resident outside Pakistan" holding Pakistani securities desirous of sending or taking out the Pakistani securities not covered under the succeeding para 7 are required to obtain prior permission of the State Bank. Application for the purpose should be made to the State Bank through an Authorised Dealer. 5. Transfer of Securities
to Non-Residents. In terms of clause (b) of sub-section 1 of Section 13 of the Act, transfer of any security or creation or transfer of any interest in a security to, or in favour of "a person resident outside Pakistan" is prohibited except with the general or special permission of the State Bank. The above prohibition applies to transfer of (i) all Pakistani securities (i.e. securities expressed to be payable in Pakistan currency or registered in Pakistan) whether held by persons resident in or outside Pakistan and (ii) all foreign securities held by Pakistan nationals. Pledging or hypothecation of securities to or in favour of non-residents e.g., as collateral or security for credit facilities abroad, (see Chapter XIX) or utilizing them for forming trusts or settlements of which a non-resident is the beneficiary is also prohibited under Section 13 of the Act. In the case of securities registered in Pakistan, the companies concerned must obtain permission of the State Bank before registering its transfer in the name of "persons resident outside Pakistan". In terms of Section 13 of the Act Authorised Dealers are required to obtain permission of the State Bank before purchasing shares or securities registered in Pakistan on behalf of "persons resident outside Pakistan". The State Bank has granted the following exemptions from the provisions of Section 13(1) of the Act in connection with the issue, transfer and export of securities registered or to be registered in Pakistan:
Above Paragraph 6 (a) I Updated via F.E. Circular 7, dated 28th 16th March, 1998
Above Paragraph 6 (g) Updated via F.E. Circular 8, 30th April, 1997 Above Paragraph 6 (g) Updated via F.E. Circular 37, 16th October, 1996 Above Paragraph 6 (g) Added via F.E. Circular 8, 23rd January, 1994. Above Paragraph 6 (f) Updated via F.E. Circular 68, 30th July, 1992. Issue of shares by companies incorporated in Services / Infrastructure, Social and Agriculture Sectors, to 'persons resident outside Pakistan' on reportable basis against payment in foreign exchange, provided the conditions prescribed in the Government's current Investment Policy have been fulfilled and an 'Entitlement Certificate' issued by the State Bank. Above Paragraph Added via F.E. Circular 31 dated 15th December, 1997. 7. Sources of Finance for
Purchase of Securities etc. (a) Companies issuing shares on repatriable basis, as permitted in sub-paragraph (a) of paragraph 6, may open foreign currency collection accounts with banks abroad for receiving the subscription in foreign currency. They may also allow refunds to unsuccessful applicants. The amounts subscribed by the successful applicants should be repatriated to Pakistan and foreign currency accounts closed within a week of the allotment of shares and a Proceeds Realization Certificate obtained from the concerned Authorised Dealer in Pakistan. The Proceeds Realization Certificate should be submitted to their banker which is designated by them for the purpose of remittance of dividend and dis-investment proceeds as per procedure out lined in Para 13(b), Chapter XIV. A list (Appendix V-96) in duplicate of all the persons (non-resident Pakistanis and foreigners) to whom the shares have been allotted, should also be submitted. The designated Authorised Dealer will retain a copy of the list for its records and pass on another copy alongwith the Proceeds Realization Certificate to the Exchange Control Department (Investment Division), State Bank of Pakistan, Central Directorate, Karachi. Above Paragraph is Updated via F.E. Circular 7, dated 28th March, 1998. (b) In case shares are to be issued to non-residents against the value of plant and machinery supplied by them, an application should be submitted to the Area Exchange Control Office for issue of "Exchange Entitlement Certificate" alongwith the Invoices, Bills of Lading, Bills of Entry and Import Permit. Once the Exchange Entitlement Certificate has been issued, the company concerned may issue shares to the non-resident investors and surrender the "Exchange Entitlement Certificate" in place of bank's encashment certificate. (c) I Procedure for issue of shares
Above Paragraph is Replaced via F.E. Circular 7, dated 28th March, 1998. (d) Subject to observance of the procedure outlined in sub-para (a), (b) & (c) above, the companies issuing/registering transfer of shares in favour of non-residents may export the share certificates to the non-resident owners and the designated Authorised Dealers may allow remittance in respect of the following:
(e) The Designated Authorised Dealer while reporting remittance of disinvestment proceeds in favour of non-residents as permitted under sub-para (d) above, in their monthly exchange returns should invariably attach the following information / documents:
8(a). Trading of
Quoted Shares by Non-Residents. (i) Non-residents are allowed to trade freely in the shares quoted on the Stock Exchanges in Pakistan. For this purpose the non-residents will be required to open a "Special Convertible Rupee Account" with any Authorised Dealer in Pakistan. Such accounts can be fed by remittances from abroad or by transfer from a foreign currency account maintained in Pakistan. The balance available therein can be used for purchase of any share quoted on the Stock Exchange. Payment for such purchases may be debited to the account on production of stock broker's memo showing sale of shares to the account holder and sale proceeds of shares may be credited provided evidence of the sale price in the shape of stock broker's memo is produced. The fund available in such special accounts can be transferred outside Pakistan or credited to a foreign currency account maintained in Pakistan at any time without prior approval of the State Bank. These accounts can also be credited with dividend income. Transfers from one such account to another may also be made in case of transfer of shares between the two account-holders. (ii) The Authorised Dealers will be required to submit to the Senior Deputy Director, Foreign Exchange Department, (Investment Division), State Bank of Pakistan, Central Directorate, Karachi a statement showing the balance as on 30th June each year in each such individual account, the total amount of inward remittances in the account, the total outward remittances during the year from the account and the market value of stocks held by the account holder as on 30th June. 8(b). Trading of
Federal Investment Bonds & Treasury Bills in the Secondary Market. Non-residents are allowed to trade freely in Federal Investment Bonds (FIBs) and Treasury Bills (TBs) in the secondary market through Special Convertible Rupee Accounts subject to the instructions applicable to these accounts as contained in sub-para (a) above. 9. Issue and encashment of
Foreign Exchange Bearer Certificates/ U.S. Dollar Bearer Certificates/Five Years Foreign
Currency Bearer Certificates. In terms of Federal Governments Notification No.575(I)/85 dated the 6th June, 1985, No.140(I)/91 dated the 25th February, 1991 and No.167(1)92 dated the 7th March, 1992 the schemes of Foreign Exchange Bearer Certificates, U.S. Dollar Bearer Certificates and five-year Foreign Currency Bearer Certificates respectively have been floated. Agencies authorised by the Federal Government as offices of issue can sell and encash these certificates. The procedure for sale and encashment of the same has been prescribed by the Securities Department of the State Bank of Pakistan. 10. Issue of foreign
exchange against Encashment of Foreign Exchange Bearer Certificates / U. S. Dollar Bearer
Certificates / Five Years Foreign Currency Bearer Certificates. In case encashment is made in Pakistan and the bearer desires to receive the amount in foreign exchange, Authorised Dealers may issue Foreign Currency Notes/Demand Drafts/T.Ts/M.Ts/Travellers Cheques in the name of the beneficiary indicated by the bearer. 11. Export and Transfer
of Foreign Exchange Bearer Certificates/ U. S. Dollar Bearer Certificates/Five Years
Foreign Currency Bearer Certificates. Bearer Certificates. State Bank of Pakistan vide its Notification No.F.E.2/85-SB dated the 1st August, 1985 (App. III-13) has granted general permission for doing various acts referred to in Section 13 of the Foreign Exchange Regulation Act, 1947 in relation to Foreign Exchange Bearer Certificates issued under Foreign Exchange Bearer Certificates Rules 1985, U. S. Dollar Bearer Certificates Rules 1991 and Five years Foreign Currency Bearer Certificates issued under Five years Foreign Currency Bearer Certificates Rules 1992. In other words, persons irrespective of their nationality and/or residential status can freely take or send out of Pakistan the Foreign Exchange Bearer Certificates/ U.S. Dollar Bearer Certificates and Five years Foreign Currency Bearer Certificates and transfer them to non-residents. 12. Transfers between
Registers . Clauses (c) and (d) of sub-section (1) of Section 13 of the Act prohibit, respectively, transfers of securities from registers in Pakistan to registers outside Pakistan and the issuing, whether in Pakistan or elsewhere, of securities which are registered or to be registered in Pakistan, to "persons resident outside Pakistan" except with the general or special permission of the State Bank. 13 (a). Holding and
Disposal of Foreign Securities. Pakistan national resident in Pakistan who is or becomes owner of foreign securities is permitted to hold or retain such securities provided he has acquired them in a manner not involving a breach or violation of the Foreign Exchange regulations. Holders of foreign securities who wish to sell, transfer or otherwise dispose of or deal in securities, can do so only with the prior permission of the State Bank. 13 (b). Investment
Abroad by Resident Pakistanis. Residents of Pakistan including firms and companies incorporated in Pakistan can make investment in companies incorporated abroad on repatriable basis through Foreign Exchange Bearer Certificates subject to the following conditions:
14. Registration of
Foreign Securities. Under Section 19(I) of the Act, the Federal Government have issued a Notification No.I(1)-2-FE/56 dated the 1st August, 1956, requiring all persons resident in Pakistan who are or become the owners of any security in respect of which the principal, interest or dividends is or are payable in the currency of any foreign country or in respect of which the owner has the option to acquire the payment of principal, interest or dividends in such currencies to make a return to the State Bank within one month of their acquiring the securities giving particulars in respect of the said securities. The specimen of the form in which these particulars are required to be furnished in duplicate is given in Appendix V-97. Foreign nationals residing in Pakistan are not required to submit the above returns. 15. Under-writing of
shares, term certificates and Modaraba certificates by foreign banks. Underwriting of shares, participation term certificates etc., by foreign banks eventually involves holding of those shares/securities which are not taken up by the general public, and as such attracts the provisions of Section 13(1) of the Foreign Exchange Regulation Act, 1947. State Bank has given general permission under which foreign banks can under-write the issue of shares to the extent of 30% of the public offering or 30% of its own paid-up capital and reserves whichever is less. They are also permitted to under-write public issues of participation term certificates, term finance certificates and modaraba certificates provided that where the terms and conditions of issue of such securities grant an option to the holders to convert the securities into ordinary shares, the restrictions of 30% as mentioned above would apply. 16. Permission of
Pakistani Branches of Foreign Banks to invest in Corporate Fixed Income Securities. Branches of foreign banks in Pakistan and foreign controlled investment banks incorporated in Pakistan are permitted to invest in Pak. Rupee denominated registered listed corporate debt. Instrument issued in Pakistan, provided such investment is made through initial public of offerings and secondary market purchases, and further provided that investment in those debt instruments which are convertible into shares does not exceed 30% of the paid-up capital and reserves of the investing institution, which ever is less. The profit / interest accruing on such investment will be treated as their income for the purpose of profit / dividend remittance Above Paragraph is Revised via F.E. Circular 35, dated 9th July, 1997. Above Paragraph is Added via F.E. Circular 21, dated 13th August, 1997. | back | |
