The Pakistan Stock Exchange (PSX) has unveiled proposed amendments aimed at establishing a comprehensive regulatory framework for Shariah-compliant securities trading, signaling a major step toward strengthening Pakistan’s Islamic capital market infrastructure and enhancing investor confidence in faith-based investment products. Stakeholders are invited to provide feedback on the proposals by March 2, 2026, ahead of final approval by the Securities and Exchange Commission of Pakistan (SECP), the country’s apex capital markets regulator.
The consultation document introduces a new Chapter 4A titled “Shariah-Compliant Securities Trading,” outlining eligibility criteria, operational procedures, governance standards, trading restrictions, and compliance mechanisms for brokers offering Islamic brokerage services. Under the proposed framework, only brokers certified as Shariah-compliant companies, or those operating wholly owned Shariah-compliant subsidiaries or dedicated service windows, would be permitted to provide these services. Certification under the Companies Act, 2017 and compliance with Shariah Governance Regulations, 2023 would be mandatory.
Applicants must also obtain an opinion from a Shariah Supervisory Board or registered Shariah Advisor, confirming adherence to Islamic principles and system-level controls, before receiving a Trading Rights Entitlement (TRE) certificate. Existing brokers seeking to open Shariah-compliant service windows would be subject to similar requirements and regulatory oversight.
To maintain operational segregation, Shariah-compliant trades would be executed through dedicated trading terminals called Shariah-Compliant Trading Counters, separate from conventional brokerage operations. Brokers would also utilize specialized Customer Relationship Forms and Sahulat account-opening forms tailored for Shariah-designated clients. The segregation is intended to prevent commingling of Islamic and conventional transactions and ensure fully compliant investment operations.
The proposed framework introduces stringent pre-trade validations. Buy orders must be verified against the official Shariah-compliant list, and financing must occur through approved Islamic modes such as Murabahah-based share financing. Sell orders require confirmation of actual ownership, settlement of prior purchases, and absence of encumbrances, including pledges, liens, or freezes. Practices inconsistent with Islamic principles, including short selling, blank selling, derivative contracts, preference shares trading, and interest-based financing, would be prohibited. Shariah-non-compliant securities could only be sold for divestment purposes.
All Shariah-compliant trades would be cleared through the National Clearing Company of Pakistan Limited (NCCPL) on a T+1 settlement cycle, with purchased shares not eligible for resale before actual settlement and credit into the investor’s account at the Central Depository Company (CDC), reinforcing the Islamic principle that ownership must precede sale.
The framework also emphasizes Shariah governance, requiring brokers to appoint a Shariah Supervisory Board or Advisor, implement continuous compliance monitoring, and oversee product and process reviews, income purification, divestment of non-compliant securities, and dividend distribution. Marketing materials would be subject to strict adherence to Islamic principles, clearly disclosing whether a firm offers fully Shariah-compliant services or operates through a dedicated window.
To strengthen enforcement, the PSX proposes incorporating Shariah-compliant brokerage requirements into system audit regulations, mandating that external auditors verify compliance during regulatory audits. Once approved, the framework is expected to institutionalize Islamic brokerage operations at the exchange level, expanding participation from Shariah-conscious investors and reinforcing Pakistan’s position in the global Islamic finance sector.
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