The Securities and Exchange Commission of Pakistan (SECP) has taken a decisive step toward modernising the country’s corporate sector by launching the second phase of its initiative to digitise share ownership for unlisted companies. The reform mandates a transition from traditional physical share certificates to electronic book-entry form, to be maintained through the Central Depository System (CDS) operated by the Central Depository Company (CDC). This move aims to strengthen transparency, reduce fraud risks, and streamline corporate operations across the unlisted segment.
Currently, many unlisted companies maintain physical share certificates, which are susceptible to loss, theft, damage, and forgery, creating a persistent risk of ownership disputes that often end up in courts. By digitising these shares, the SECP seeks to create secure, tamper-proof records, reducing litigation risks and enhancing investor confidence. Book-entry shares will provide real-time and accurate records of shareholding, allowing faster settlement and more efficient management of transactions.
The digitisation process is designed not only to improve security and transparency but also to lower administrative costs. By eliminating paper certificates, companies can reduce the paperwork involved in share transfers, allotments, and other transactions. Electronic shares can also be pledged as collateral for financing, improving access to credit for businesses and enabling smoother capital operations. Analysts note that this system could significantly enhance liquidity in the corporate sector while aligning it with international best practices.
Under the second phase, all existing unlisted companies with physical shares will be required to convert them into electronic book-entry form before executing any share-related transactions. This includes transfers, allotments, rights issues, bonus issues, buybacks, or any changes in ownership structure. Once digitisation is complete, all share transactions must be conducted through the CDS, ensuring centralised record-keeping and compliance. This phased approach allows companies to continue routine operations while gradually moving toward full digitisation.
The SECP has already mandated electronic issuance for newly incorporated unlisted companies, eliminating physical share certificates entirely. For legacy companies, the upcoming formal notification will provide detailed procedures for conversion, including eligibility criteria, documentation requirements, verification mechanisms, and applicable fees. The commission aims to ensure a smooth and orderly transition that is secure for both companies and shareholders.
Experts view this initiative as a significant step in enhancing corporate governance, strengthening investor protection, and improving the ease of doing business in Pakistan. By leveraging technology to digitise shareholding structures, the SECP is not only reducing the risk of fraudulent transfers but also positioning the unlisted corporate sector for greater efficiency and integration with international markets. The reform marks a pivotal moment in Pakistan’s capital market evolution, signaling a broader move toward transparency, accountability, and digital transformation in corporate operations.
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