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A brokerage company primarily acts as an intermediary, connecting buyers and sellers to facilitate business transactions. These companies typically earn compensation through commissions or fees charged upon the successful completion of a transaction. In modern practices, compensation may be paid by the exchange, the customer, or both.
With the rise of zero-commission trading offered by many discount brokerages, these firms compensate for lost revenue through alternative means, such as receiving payments from exchanges for larger order flows. For instance, when a stock trade order is executed, the investor pays a transaction fee to the brokerage company for facilitating the trade.
In industries like real estate, the brokerage company model is prevalent. Real estate brokers often collaborate, with each company representing one party in the transaction. The commission is then split between the two brokerage companies involved.
A brokerage company may also be referred to as a brokerage firm or simply a broker. Brokers can either work for a brokerage company or operate as independent agents.
According to the Securities Act 2015, securities in the case of listed instruments include the following:
A securities broker serves as a crucial intermediary between consumers and financial markets, facilitating connections between buyers and sellers. They execute the purchase or sale of stocks, bonds, and other securities on behalf of their clients. Securities brokers provide information about available services, offer advice on securities transactions, and monitor financial markets and individual securities' performance.
To operate as a securities broker, one must apply for a Trading Rights Entitlement Certificate (TREC). Applicants must submit a signed application in the TRE Certificate Application Form to the Pakistan Stock Exchange (PSX). Upon approval by the PSX CEO, the applicant is issued the certificate. According to the Stock Exchanges (Corporatization, Demutualization, and Integration) (Amendment) Act 2012, the PSX must issue 15 TRE Certificates annually until 2025.
Applicants have 60 days from the issuance of the application form to complete and sign it. Approval or rejection of the application occurs within 30 days of submission to the PSX.
New TRE Certificate: Rs. 2.5 Million Non-refundable Application Processing Fee: Rs. 100,000/- Fees must be paid via Pay Order in favor of Pakistan Stock Exchange along with the application.
Must be a Public or Private company (Single Member Companies are not eligible).
Minimum issued and paid-up capital: Rs. 50 Million.
Must be a Pakistani citizen.
Should not serve on the board of any other company whose principal activity involves securities market trading/investment.
Must not have been directors, sponsors, or substantial shareholders (holding over 10%) in any company declared a defaulter, expelled by the Exchange, or whose TRE Certificate was canceled/forfeited before demutualization.
At least two directors, including the Chief Executive, must hold a graduation degree from an HEC-recognized university or equivalent foreign qualification.
Must have a minimum of five years' experience in securities trading or related business.
The company must solely engage in brokerage activities.
Cannot hold a TRE Certificate if any managerial staff meet disqualification criteria as per PSX regulations.
After obtaining the Trading Rights Entitlement Certificate (TREC), the applicant company can apply for a securities brokerage license from the Securities & Exchange Commission of Pakistan (SECP). This involves submitting an application along with the required documents to the Pakistan Stock Exchange (PSX).
Information and Documents Required with the Application
1. General and business information: Brief background of the applicant company, containing at least name of the applicant, date and place of its incorporation, date of commencement of business, name and contact details of key management staff, the including group structure, if any, and length of experience as securities broker, if any.
2. Address of the registered office of the applicant (postal address, postal code and telephone, fax numbers.)
3. Contact details of the applicant Company (postal address, postal code, telephone number, fax numbers and e-mail address)
4. Percentage of capital that each sponsor has proposed to contribute in the company.
5. Name of the securities exchange of which the applicant is a TRE certificate holder, along-with the TRE Certificate number.
6. Details of outstanding legal proceedings, if any, initiated against the applicant, its directors or senior management officers by the Commission or any other regulatory authority.
7. Details in case the applicant, its sponsors, directors, major shareholders or senior management officers have been declared insolvent or bankrupt, or declared defaulter by any authority.
8. Details of penal actions, if any, taken against the applicant, its sponsors, directors, major shareholders or senior management officers during the last three years by the Commission or any other regulatory authority.
9. In case any associated company of the applicant is already licensed under the Securities Act, 2015, the following details shall be provided, namely:
Name of such associated company;
Details of warning notices, if any, issued to such associated company by the Commission;
Details of legal proceedings, if any, initiated against such associated company by the Commission or any other regulatory authority; and
Penal action, if any, taken against such associated company by the Commission during the last three years.
10. Details of infrastructural facilities (to be used for performing the functions of a securities broker):
11. Computer System Installed: (a) Hardware Configuration and (b) Software used.
12. Data Processing Capacity: (a) Available infrastructure (computers and other electronic equipment used for data processing and communication); (b) Available manpower; and (c) Office space (mention extent of area in square feet available)
Other Information
Details as per following format of all pending disputes in which the applicant is a party: (a) Name of the party; (b) Name and place of court / tribunal where dispute is pending; (c) Amount involved; (d) Pending since; (e) Date of last hearing; and (f) Decision at last hearing List of civil and criminal offenses in which the applicant or any of its sponsors, directors or senior management officer has remained involved during the last three years. Any other information considered relevant to the business of the securities brokers. Any significant awards or recognition, collective grievances against the applicant. List of documents to be provided along with application:
After scrutinizing the application, the Pakistan Stock Exchange will send the application to SECP for further scrutiny and approval. If the application is approved by Securities and Exchange Commission of Pakistan, a license is provided by the SECP to Pakistan Stock Exchange which is forwarded to the respective TREC holder. Along with these documents there are Undertakings, Fit and proper Criteria and Checklist of Brokers that need to be attached as well.
[See regulation 5(1) and 9(1)] For renewal of securities broker licence = Rs.50,000 For the grant of new licence to act as a securities broker Rs.100,000 The fee can be deposited into the bank account of the Commission. The license of securities broker is valid for a period of one year.