SECP Finalises Stock Split Guidelines to Empower Retail Investors
— December 27, 2024
ISLAMABAD (AIA) The Securities and Exchange Commission of Pakistan (SECP) has approved new guidelines for stock splits, developed by the Pakistan Stock Exchange Limited (PSX), to encourage this financial strategy among listed companies. The guidelines aim to enhance liquidity and broaden market access, particularly for companies with high share prices, according to a press release issued on Friday.
The guidelines cover legal and procedural requirements, detailed process flows, case studies, cost and tax implications, and accounting treatments. A stock split divides a company’s existing shares into multiple new shares, lowering the price per share while increasing the number of outstanding shares. This adjustment enhances affordability for retail investors, facilitates accurate price discovery, and increases trading volumes.
The PSX currently has several companies with low trading volumes due to high share prices, with some reporting annual volumes as low as 10,000 to 20,000 shares. Such low liquidity inhibits price discovery and discourages investor participation. The SECP and PSX hope the new guidelines will address these challenges by making shares more accessible to retail investors and encouraging further investments through secondary public offerings or additional share issues.
Globally, stock splits have been successfully used by companies like Amazon, Apple, and Tesla to adjust market pricing and boost trading activity. In Pakistan, stock splits are permitted under Section 85(1)(c) of the Companies Act, 2017, through a special resolution. However, only three companies have executed stock splits recently, with notable increases in trading volumes and investor participation as a result.
The SECP and PSX developed the guidelines after extensive consultations with key stakeholders, including the Central Depository Company (CDC), the Institute of Chartered Accountants of Pakistan (ICAP), and listed companies. To further promote stock splits, the SECP has instructed the PSX to conduct awareness sessions and launch an educational campaign highlighting the benefits of stock splits for both companies and Pakistan’s capital market.