Companies Rules

Volume III
Rules (From 2000 to till date)
(Updated up to 5 December 2013)

Securities and Exchange Commission of Pakistan

Companies Rules
Volume III
Rules (From 2000 to till date)
(Updated up to 5 December 2013)

Securities and Exchange Commission of Pakistan

VOLUME I STATUTES
Insurance Act, 1938 (Repealed) Securities and Exchange Ordinance, 1969 Companies (Appointment of Trustees) Act, 1972 (Repealed) Companies (Appointment of Legal Advisors) Act, 1974 Foreign Private Investment (Promotion & Protection) Act, 1976 (Repealed) Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 Companies Ordinance, 1984 Central Depositories Act, 1997 Securities and Exchange Commission of Pakistan Act, 1997 Insurance Ordinance, 2000 Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Ordinance, 2002 Anti-Money Laundering Act 2010 Stock Exchanges (Corporatisation, Demutualisation and Integration) Act, 2012

VOLUME II RULES
Securities and Exchange Rules, 1971 Investment Companies and Investment Advisors Rules, 1971 (Repealed) Companies Profits (Workers Participation) Rules, 1971 Economic Reforms (Acquisition and Compensation) Rules, 1973 (Repealed) Companies (Appointment of Trustees) Rules, 1973 Companies (Appointment of Legal Advisors) Rules, 1975 Modaraba Companies and Modaraba Rules, 1981

Corporate Law Authority Rules, 1984 (Repealed) Companies (General Provisions and Forms) Rules, 1985 Forms Companies (Invitation and Acceptance of Deposits) Rules, 1987 Companies (Management by Administrator) Rules, 1993 Credit Rating Companies Rules, 1995 Asset Management Companies Rules, 1995 (Repealed) Companies (Issue of Share Capital) Rules, 1996 Venture Capital Companies and Fund Managers Rules, 1995 (Repealed) Employees Provident Fund (Investment in Listed Securities) Rules, 1996 Companies (Issue of Capital) Rules, 1996 Central Depository Companies (Establishment and Regulation) Rules, 1996 Companies (Court) Rules, 1997 Companies (Audit of Cost Accounts) Rules, 1998 Companies (Rehabilitation of Sick Industrial Units) Rules, 1999 Companies (Buy-back of Shares) Rules, 1999 Companies (Asset-Backed Securitization) Rules, 1999

VOLUME III
Companies' Share Capital (Variation in Rights and Privileges) Rules, 2000 Leasing Companies (Establishment and Regulation) Rules, 2000 (Repealed) Members' Agents and Traders (Eligibility Standards) Rules, 2001 Stock Exchange Members (Inspection of Books and Record) Rules, 2001 Public Companies (Employees Stock Option Scheme) Rules, 2001 Brokers and Agents Registration Rules, 2001 Balloters Transfer Agents and Underwriters Rules, 2001 Insurance Rules, 2002

Non-Banking Financial Companies (Establishment and Regulation) Rules, 2003 SECP (Appellate Bench Procedure) Rules, 2003 Single Member Companies Rules, 2003 Margin Trading Rules, 2004 (Repealed) Commodity Exchange and Futures Contract Rules, 2005 Voluntary Pension System Rules, 2005 Clearing Houses (Registration and Regulation) Rules, 2005 Takaful Rules, 2005 (Repealed) Anti Money Laundering Rules, 2008 Securities (Leveraged Markets and Pledging) Rules, 2011 Takaful Rules, 2012 Public Sector Companies (Corporate Governance) Rules, 2013 Microinsurance Rules, 2013

VOLUME IV REGULATIONS
Securities and Exchange Policy Board (Conduct of Business) Regulations, 2000 Regulations for the Karachi Stock Exchange, 2001 Code of Corporate Governance, 2002 Companies (Registration Offices) Regulations, 2003 Prudential Regulations for Modarabas, 2004 Regulations Governing System Audit of Brokers of Exchanges, 2004 Real Estate Investment Trust Regulations, 2008 Private Equity and Venture Capital Fund Regulations, 2008 Private Equity & Venture Capital Fund Regulations, 2008 - Forms and Schedules Group Companies Registration Regulations, 2008 Anti-Money Laundering Regulations, 2008

NBFCs and Notified Entities Regulations, 2008 Prudential Regulations for NBFCs undertaking the Business of Leasing only Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Regulations, 2008 Code of Corporate Governance, 2012 Debt Securities Trustee Regulations, 2012 Insurance Accounting Regulations, 2012 Companies (Investment in Associated Companies or Associated Undertakings) Regulations, 2012 Third Party Administrators for Health Insurance Regulations, 2013 Centralised Information Sharing Solution for Life Insurance Industry Regulations, 2013

VOLUME V GUIDELINES
Guidelines for Issue of Certificates of Musharika for Modarabas, 1994 Listed Companies (Prohibition of Insider Trading) Guidelines, 2001 Guidelines for Preparation of Prospectus, 2002 Equity Issues (Checklist of Documents for Approval of Prospectus or Offer for Sale Document), 2002 Guidelines for Appointment on the Board of Directors of the Stock Exchanges, 2002 Term Finance Certificates (TFCs) Issues (Checklist of Documents for Approval of Prospectus, 2002 Guidelines for the Issue of TFCs to General Public, 2002 Guidelines on Issue of Shares at Discount, 2004 Internet Trading Guidelines, 2005 Guidelines for Issue of Commercial Paper, 2006 Guidelines for Bancassurance, 2010 Corporate Social Responsibility Voluntary Guidelines, 2013 Guidelines on Quarterly Accounts

ORDERS
Vegetable Ghee and Cooking Oil Companies (Cost Accounting Records) Order, 1990 Cement Industry (Cost Accounting Records) Order, 1994 Sugar Industry (Cost Accounting Records) Order, 2001 Companies Cost Accounting Records (General Order), 2008 Companies (Corporate Social Responsibility) General Order, 2009 Fertilizer Industry (Cost Accounting Records) Order, 2011 Chemical Fertilizer Industry (Cost Accounting Records) Order, 2012 Synthetic and Rayon Companies (Cost Accounting Records) Order, 2012 Electric Power Generation Industry (Cost Accounting Records) Order, 2012 Pharmaceutical Industry (Cost Accounting Records) Order, 2013

DIRECTIVES
Feb 17, 2005 - Directive under the Credit Rating Companies Rules, 1995 Feb 7, 2003 - Directive to Brokers on Conduct of Business 2003 Jul 18, 2002 - Directive to Brokers or Brokerage Firms or Incorporated Brokerage House Regd. under the Broker & Agents Registration Rules 2001

GUIDE SERIES
A Guide on Accounts and Accounting Reference Dates Change in Company Objects Change of Company Name Availability of Name Guide Conversion of Status of Companies Directors and Secretaries Guide Filing of Statutory Returns Foreign Companies Guide

Appointment of Statutory Auditors and Ancillary Matters Listing of Companies through Initial Public Offerings Obtaining license by an Association not for profit Further Issue of Shares otherwise than Rights Issue of Preference Shares Making Alteration in Memorandum of Association under Section 21 of Companies Ordinance, 1984 Incorporation of Company Information and Procedures Investigation into the Affairs of a Company Company Mortgages and Charges List of sensitive/prohibited words Promoters Guide Modaraba Promoters Guide Shareholders Rights Single Member Company Guide (in Urdu) Winding up / Dissolution of Companies

VOLUME VI FORMS AND APPLICATIONS Forms [See under Companies (General Provisions and Forms) Rules, 1985] Applications
Application for Availability of Name Application for File Inspection Application for Refund of Fee Application for Issuance of Certified To Be True Copy Application for Availability of Name Application for File Inspection

Application for Refund of Fee Application for Issuance of Certified To Be True Copy

NOTIFICATIONS (selected)
S.R.O. 282(I)/1986 Company Names Abbreviations and Urdu Equivalents S.R.O. 865(I)/2005 IFAS 1 Murabaha S.R.O. 431(I)/2007 IFAS 2 Ijarah S.R.O. 640(I)/2011 Maintenance of Website S.R.O. 289(I)/2011 Form of Statement in Lieu of Prospectus S.R.O. 23(I)/2012 Accounting and Financial Reporting Standards for Medium Sized Enterprises and Small Sized Enterprises S.R.O. 25(I)/2012 Maintenance of Website by Listed Companies S.R.O. 320(I)/2012 Amendments in Sixth Schedule to the Companies Ordinance, 1984 S.R.O. 753(I)/2012 Amendments in First Schedule Table A to the Companies Ordinance, 1984 S.R.O. 1354(I)/2012 Delegation of Powers of Commission S.R.O. 130(I)/2013 Recovery of Gain S.R.O. 182(I)/2013 Amendments in Fifth Schedule to the Companies Ordinance, 1984 S.R.O. 183(I)/2013 Amendments in Fourth Schedule to the Companies Ordinance, 1984 S.R.O. 194(I)/2013 Amendments in First Schedule Table A and C to Companies Ordinance, 1984 S.R.O. 210(I)/2013 Amendments in Companies (Registration Offices) Regulations, 2003 S.R.O. 211(I)/2013 eService of SECP S.R.O. 387(I)/2013 Delegation of Powers of Commission S.R.O. 479(I)/2013 Amendments in Public Sector Companies (Corporate Governance) Rules, 2013 S.R.O. 571(I)/2013 IFAS 3 Profit and Loss Sharing on Deposits S.R.O. 677(I)/2013 Amendments Public Sector Companies (Corporate Governance) Rules, 2013

CIRCULARS (selected)
Circular 8/2001 Companies Regularisation Scheme

Circular 1/2002 Adoption of International Accounting Standards 22, 36 and 39 Circular 2/2002 Companies Regularisation Scheme Circular 3/2002 Adoption of International Accounting Standards 40 Circular 4/2002 Adoption of International Accounting Standards 22, 36 and 39 Circular 15/2002 Transfer off Regulatory Supervision of Non-Banking Financial Institutions and Submission of Periodical Returns/Statements Circular 16/2002 Submission of Quarterly Accounts by Listed Companies Circular 17/2002 Information on Current Credit Rating and COIs/CODs being maintained by NBFCs Circular 18/2002 Submission of Quarterly Accounts by Listed Companies Circular 19/2002 - Appointment of External Auditors by the Listed Companies Circular 1/2003 Appointment of Sole Proprietor Chartered Accountants as Auditor by Business Name Circular 2/2003 International Accounting Standard 40 Investment Property Circular 7/2003 Appointment of Directors/Chief Executive in the Modaraba Companies Circular 8/2003 Checklist for Appointment of Directors Circular 9/2003 Preparation and Transmission of Second Quarterly Accounts by the Listed Companies Circular 10/2003 Fresh License(s) to be obtained by Existing Companies in terms of Section 282C of the Companies Ordinance, 1984 for Business(es) being carried out by existing NBFCs Circular 12/2003 Fresh License(s) to be obtained by Existing Companies In terms of Section 282C of the Companies Ordinance, 1984 Circular 13/2003 Maintenance of Website by the Listed Companies Circular 15/2003 Appointment of Whole Time Company Secretary Circular 18/2003 Rules of Business for NBFIs and Submission of Periodic Returns/Statements Circular 19/2003 Applicability of IAS 39 and IAS 40 to NBFCs providing investment finance services (Investment Banks), discounting services and housing finance services Circular 24/2003 Assets provided on Lease/loan basis to the Employees (Excluding CEO and Directors) Circular 25/2003 Use of word Bank or any of its derivatives Circular 26/2003 Circular No. 26 of 2003

Circular 29/2003 Corporate Agriculture Farming (CAF) Policy Circular 30/2003 Attendance of Directors in the Board Meetings through Video Conferencing Circular 6/2004 Appointment of Sole Proprietor Chartered Accountants as Auditors by Business Name Circular 7/2004 Authentication of Statutory Returns Circular 8/2004 Compliance with IAS 12 (Revised) Circular 3/2005 Holding of Election of Directors Pursuant to Companies (Amendment) Ordinance 2002 Circular 6/2005 Conditions for Issuance of Foreign Currency Certificate of Deposits (CODs) and Certificate of Investment (COIs) Circular 8/2005 Investment Policy under Rule 24(3) and Prescribed Allocation Policy for Selection by the Individual Participants under Rule 14(3) & 14(4) of the Voluntary Pension System Rules 2005 Circular 10/2005 Application(s) made under the NBFCs (Establishment and Regulation) Rules, 2003 and the Prudential Regulations for NBFCs Circular 11/2005 Rating of NBFCs and Collective Investment Scheme(s) managed by NBFCs Circular 12/2005 Appointment as a Director on the Board of an NBFC Circular 13/2005 Exemption from Requirements of Clause 3C of Part II of Fourth Schedule to the Companies Ordinance, 1984 Circular 15/2005 Sale of Assets by NBFCs to its Employees Circular 17/2005 Violation of Section 143 of the Companies Ordinance, 1984 by mentioning Incomplete Name Circular 18/2005 Attendance of Directors in the Board Meetings through Tele-Video Conferencing Circular 19/2005 Regulation for Housing Finance Applicable to Individual Borrowers Circular 24/2005 Rotation of External Auditors by Insurance Organizations Circular 3/2006 Holding of Election of Directors Circular 1/2008 Publication of Notices etc in Urdu Newspaper Circular 11/2008 Revision of Fourth and Fifth Schedules to the Companies Ordinance, 1984 Circular 16/2008 Submission of Daily Statement of Assets and Liabilities Circular 3/2009 Available for Sale Investment

Circular 14/2010 United Nations 1267 Committee's Consolidated List of Individuals and Entities regarding Freezing of Funds and Other Resources Circular 14/2010 Amendments dated September 8, 2010 Circular 14/2010 Amendments dated November 2, 2010 Circular 14/2010 Amendments dated December 22, 2010 Circular 15/2010 Related Party Assets Circular 16/2010 Categorization of Open-End Collective Investment Schemes Circular 17/2010 Notice Period for Holding Extraordinary General Meeting to pass Resolution for Filing Application under Companies Easy Exit System (CEES) Circular 18/2010 Additional Condition to the Modaraba Authorization Certificate Circular 21/2010 Clarification on Clause 3(ii) of Part II of the Third Schedule to the Modaraba Companies and Modaraba Rules, 1981 Circular 22/2010 Revised Second Schedule to Modaraba Companies and Modaraba Rules, 1981 Circular 26/2010 Application for Refund of Fees received under Sixth Schedule to the Companies Ordinance, 1984 Circular 28/2010 Application for Refund of Fees received under Sixth Schedule to the Companies Ordinance, 1984 Circular 3/2011 Amendments in Circular 36 of 2009 dated December 10, 2009 Investment and Allocation Policies for Pension Funds Authorized under the VPS Rules, 2005 Circular 4/2011 Categorization of Open-End Collective Investment Schemes Circular 5/2011 Appointment of a Member of the Religious Board by the Federal Government under Section 9 of Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 Circular 6/2011 Withdrawal of Circular 20/2010 dated 30 July 2010 Circular 7/2011 Maximum Management Expense Limits for Life Insurers under Sections 22(9) and 23(9) of the Insurance Ordinance, 2000 Circular 10/2011 Constitution of Modaraba Tribunal-II, Karachi under the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 Circular 11/2011 Sharing of Costs of Insurance Ombudsman's Secretariat by Insurance/Takaful Companies Circular 12/2011 Conditions for Grant of License to Associations not for Profit under Section 42 of the Companies Ordinance, 1984 Circular 14/2011 Meetings of the Board of Directors (Abroad)

Circular 15/2011 Additional Condition to the Modaraba Authorization Certificate Circular 17/2011 Annual Supervision Fee for 2012 Circular 18/2011 Product Information on websites Circular 19/2011 Legal Duties of Agents Circular 1/2012 Reporting of Suspicious Transaction Reports (STR) Currency Transaction Reports (CTR) to FMU under Anti Money Laundering (AML) Act, 2010 Circular 2/2012 Conditions for Grant of License to Associations not for Profit under Section 42 of the Companies Ordinance, 1984 Circular 3/2012 Product Publicity Information Circular 4/2012 S.R.O. 16(I)/2012 dated 9 January, 2012 Amendments in the Securities and Exchange Commission [Insurance) Rules, 2002 Circular 5/2012 S.R.O. 29(I)/2012 dated 13 January 2012 Takaful Rules, 2012 Circular 7/2012 Enlistment/Categorisation of Auditors on the Approved List pursuant to Section 48(1) of the Insurance Ordinance, 2000 Circular 08/2012 Shariah Compliance and Shariah Audit Mechanism (SCSAM) for Modarabas Circular 9/2012 Term of Office of Directors Circular 10/2012 Transmission of Notice of Annual General Meetings (AGM) and Extra-Ordinary General Meetings (EOGM) through Electronic Medium Circular 11/2012 Enlistment/Categorisation of Auditors on the Approved List pursuant to Section 48(1) of the Insurance Ordinance, 2000 Circular 12/2012 Launching of Fast Track Registration Services (FTRS) Circular 13/2012 Approval of Short Term Ijarah (Lease) Agreement Circular 14/2012 Launch of Inter-CRO Electronic Inspection Service Circular 15/2012 Minimum Requirement for Exchange Traded Funds to be managed by Asset Management Companies Circular 16/2012 Circular No. 16 of 2012 Circular 17/2012 Additional Disclosures for Workers Welfare Fund (WWF) Liability for Collective Investment Schemes Circular 18/2012 Dividend Mandate under Section 250 of the Companies Ordinance, 1984 Circular 19/2012 Procedure for Convening Meeting of the Unitholders of Open-End and CloseEnd Collective Investment Schemes

Circular 20/2012 Reporting of STRs/CTRs to FMU under the AML Act, 2010 Circular Restriction on sharing of management fee by Asset Management Companies with Unitholders Circular 21/2012 Filing of Returns through Insurance Companies Return Submission (ICRS) System Circular 22/2012 Relaunching of Companies Regularisation Scheme (CRS) Circular 23/2012 Relaunching of CEES Circular 31/2012 Extension in time period of CRS and CEES Circular 36/2012 Circular No. 36 of 2012 Circular 37/2012 New Insurance Accounting Regulations 2012; and Amendments in the SEC (Insurance) Rules, 2002 Circular 39/2012 Clarification on Circular 14/2011 regarding Meetings of Board of Directors (Abroad) Circular 40/2012 Extension in Time Period of CRS and CEES Circular 41/2012 Annual Supervision Fee for the year 2013 Circular 42/2012 Filing of Monthly Returns through Specialised Companies Return System (SCRS) Circular SECP registered 274 companies in August 2012 Circular 1/2013 Rate of Return Assumptions for Life Insurance and Family Takaful Illustrations Circular 2/2013 Training of Insurance Agents Circular 2 of 2/2013 Clarification on the Circular No.2 of 2013 on Training of Insurance Agents Circular 3/2013 Launching eSInsuranceSurveyors: Online Surveyors Licensing and Registration System Circular 5/2013 Examination or Test for Grant of Registration as Authorized Surveying Officer Circular 6/2013 Amendments in Circular No. 36 of 2009 dated December 10, 2009 Investment and Allocation Polices for the Pension Funds Authorized under the VPS Rules, 2005 Circular 7/2013 Clarification on Filing of Revised Annual Audited Accounts by Non-Listed Companies Circular 9/2013 Categorization of Open-End Collective Investment Schemes Circular 11/2013 Amendment to Circular No. 9 of 2005 on Group Insurance Premium Rates Circular 12/2013 Publication of Public Announcements

Circular 13/2013 Clarification regarding Circular No. 36 of 2009 dated December 10, 2009 Circular 17/2013 Mortality Rates as a Part of the Minimum Valuation Basis for the Determination of Minimum Actuarial Reserves for Policyholders Liabilities Circular 18/2013 Draft Bancassurance Regulations, 2013 Circular 19/2013 Appointment of Qualified Auditors Circular 20/2013 Maximum Management Expense Limits for Life Insurers Circular 21/2013 Life Insurance Product Submission Requirements

SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN *** Islamabad, the 28th August 2000 NOTIFICATION

S.R.O.599 (I)/2000.- In exercise of the powers conferred by section 506, of the Companies Ordinance, 1984 (XLVII of 1984), read with section 90 thereof, and clause (b) of section 43 of the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997), the Securities and Exchange Policy Board hereby makes the following rules, the same having been published previously as required under the said section 506, namely:THE COMPANIES' SHARE CAPITAL (VARIATION IN RIGHTS AND PRIVILEGES) RULES, 2000 1. Short title and commencement.- (1) These rules may be called

the Companies' Share Capital (Variation in Rights and Privileges) Rules, 2000. (2) 2. They shall come into force at once. (1) In these rules, unless there is anything

Definitions.-

repugnant in the subject or context,(a) "Commission" means the Securities and Exchange Commission of Pakistan; and "Ordinance" means the Companies Ordinance, 1984 (XLVII of 1984).

(b)

(2)

All other terms and expressions used but not defined in these rules

shall have the same meaning as assigned to them in the Ordinance. 3. Kinds and classes of share capital.- (1) A company limited by

shares may have more than one kind of share capital and may have different classes of shares under each kind. (2) Where a company intends to have different kinds of share

capital and classes of shares therein, it shall specifically so provide in its memorandum and articles.

4.

Nature of rights and privileges.- Each kind of share capital of a

company and class or classes of its shares, if any, as specified in the memorandum and articles may have different rights and privileges, which shall be provided in the articles. The variation in the rights and privileges of the shareholders in a kind of share capital or class or classes therein may be of the nature, including the following, namely:(a) different voting rights; voting rights disproportionate to the paid up value of shares held; voting rights for specific purposes only; or no voting rights at all; different rights for entitlement of dividend, right shares or bonus shares or entitlement to receive the notices and to attend the general meetings; and rights and privileges for indefinite period, for a limited specified period or for such periods as may from time to time be determined by the members through special resolution.

(b)

(c)

5.

Conditions.- (1) No company shall issue further share capital of

any kind or class carrying different rights and privileges except with prior approval of the Commission to be obtained on the basis of a special resolution. (2) Subject to the provisions of section 86 of the Ordinance, offer

of further share capital of any kind or class carrying different rights and privileges shall be made to each existing shareholder proportionately without any discrimination. (3) If any of the existing shareholders declines to accept the offer

made under sub-rule (2), the shares so declined shall be disposed of by the directors in such manner as may be provided in the articles or in accordance with the special resolution passed by shareholders.

(4)

In case share capital of a company has different classes

having different rights and privileges and the same is to be offered to the general public, the fact shall be distinctly mentioned in the offering document and the difference in the rights and privileges of any class of share capital shall be conspicuously mentioned in the offering document or prospectus, etc. No.F.ED/SECP-5/2000

(Hizbullah Siddiqui) Joint Director (Admn.)

The Gazette of Pakistan EXTRA ORDINARY PUBLISHED BY AUTHORITY ISLAMABAD, SEPTEMBER 25, 2000 PART II Statutory Notifications (S.R.O.) GOVERNMENT OF PAKISTAN SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN Islamabad, the 25th September, 2000 NOTIFICATION S.R.O. ----(I)/2000.In exercise of powers conferred by section 506 of the Companies Ordinance, 1984 (XLVII of 1984), read with Finance Division's Notification No. S.R.O. 698(I)/86, DATED July 2, 1986, the Securities and Exchange Commission of Pakistan hereby makes the following rules, the same having been published previously as required by the said section, namely :THE LEASING COMPANIES (ESTABLISHMENT AND REGULATION) RULES, 2000 (As amended upto December 21, 2000) 1. Short title and commencement. - (1) These rules may be called the Leasing Companies (Establishment and Regulation) Rules, 2000. (2) They shall come into force at once.

2. Definitions. - (1) In these Rules, unless there is anything repugnant in the subject or context ,(a) (b) Certificate of investment means a certificate of investment issued by a leasing company under these rules; Commission" means the Securities and Exchange Commission of Pakistan established under Securities and Exchange Commission of Pakistan Act , 1997(XLII of 1997); company means a company incorporated under the Companies Ordinance, l984 (XLVII of l984);

(c)

(d)

"documents" include vouchers, bills, promissory notes, securities for leases, advances and claims by or against the company and other documents supporting entries in the books of the leasing company; "equity" includes paid up share capital, free reserves, unappropriated profits and subordinated loans excluding deferred tax reserves and treasury stocks; "exposure or facilities" include fund based and non-fund based facilities; "Form" means the Form annexed to the rules; "Government securities" include such types of Pakistani rupee and foreign currency obligations of the Federal Government or of a Corporation wholly owned or controlled, by the Federal Government or Provincial Government and guaranteed by the Federal Government as the Federal Government may, by notification in the Official Gazette, declare to the extent determined from time to time, to be Government securities; "leasing company" means a company engaged wholly in the business of leasing or which invests in such business at any one time an amount equivalent to at least seventy per cent of its assets. Provided that cash and bank balances and investment in government securities shall be excluded to calculate investment in leasing business for purposes of this definition;

(e)

(f) (g) (h)

(i)

(j) (k) (l)

"lease key money" means lease security deposit; "major shareholder" means any person holding five per cent or more of the paid-up share capital; "NBFI" means a Non-Bank Financial Institution and includes a DFI, Modaraba, Leasing Company, Housing Finance Company, Investment Bank, Discount House and Venture Capital Company; Ordinance means the Companies Ordinance, l984 (XLVII of l984); "person" includes an individual, a Hindu undivided family, a firm, an association or body of individuals whether incorporated or not, a company and every other juridical person; "records" includes ledgers day books, cash books and all other manuals or magnetic records used in the business of the leasing company; and "small entrepreneurs" mean individuals, firms and companies having fixed assets excluding land and building of the value of not more than twenty

(m) (n)

(o) (p)

million rupees and facilities allowed to the software exporters or software houses and information technology companies; (2) The words and expressions used in these rules but not defined shall have the same meanings as are assigned to them in the Companies Ordinance, 1984 (XLVII of 1984). 3. Eligibility conditions for the establishment of a leasing company.- A leasing company may be established if each of its sponsors, proposed directors, chief executive and chairman of the Board of Directors fulfills the following terms and conditions, namely:(a) (b) (c) he has not been associated with any illegal banking business, deposit taking or financial dealings; he and companies in which he is a director or major shareholder, have no over-due loans or instalments outstanding towards banks or NBFIs; neither he nor the companies in which he is a director or major shareholder has defaulted in the payment of taxes as on the date of application; he has not been sponsor, director or chief executive of a defaulting cooperative finance society or finance company; he has never been convicted of fraud or breach of trust or of an offence involving moral turpitude or removed from service for misconduct; he has neither been adjudged as insolvent nor suspended payment of his debts nor has compounded with his creditors; and except for a nominee director, his net-worth as per wealth statements submitted with the tax authorities is not less than twice the amount to be subscribed by him personally;

(d) (e) (f) (g)

4. Permission to form a leasing company.- (1) A person desirous of forming a leasing company shall make an application to the Commission as set out in Form-1 providing information, as given in Annexure thereto, along with all the relevant documents and receipt evidencing the payment of non-refundable processing fee amounting to one hundred thousand rupees. (2) The Commission may, if it is satisfied that the persons seeking permission to form the leasing company has fulfilled the terms and conditions specified in rule 3, permit by an order in writing such person to establish a leasing company. (3) The permission granted under sub-rule (2) shall be valid for a period of six months unless extended for a maximum period of three months under special

circumstances, on the application of the promoters made before the expiry of said six months. 5. Conditions for grant of licence.- A leasing company shall not granted licence unless it fulfills the following conditions, namely; (a) (b) (c) (d) it is incorporated as a public limited company under the Ordinance; it has a minimum paid-up share capital of two hundred million rupees; it has allotted at least fifteen per cent of the paid-up share capital to the promoters; its promoters and directors have given undertaking that they shall not dispose of their shares for a minimum period of three years from the date of commencement of business except with the prior approval of the Commission; appoints its chief executive who does not hold such office in any bank or Non-Bank Financial institution or insurance company or investment company; it has given an undertaking that no change in the Memorandum of Association and in the directors shall be made without prior authorization of the Commission and that all conditions of rule 3 shall be complied with; and it has given undertaking that the conditions of operation set out in these rules or specified by special order of Commission shall be duly complied. be

(e)

(f)

(g)

6. Commencement of leasing operations.- (1) A leasing company shall commence business and its operations only after it has been issued a licence under these rules. (2) Form- II. A leasing company shall make an application for obtaining a licence in

(3) The licence to carry on business as a leasing company shall be granted by the Commission as set out in Form- III. (4) Without prejudice to the terms and conditions set out in rule 7, the Commission may while granting licence, or subsequently, impose any other conditions as it may deem necessary. 7. Terms and conditions of operation.- A leasing company shall operate in accordance with the following conditions, namely:(1) it shall -

(i) (ii)

invest its assets in leasing business as provided in clause (i) of rule 2; appoint as its chief executive and at least one of the directors having senior management level experience in financial sector preferably in leasing sector for at least five years ;

(iii) appoint its chief accounting officer who is a chartered accountant or a Cost and Management Accountant or a person having Masters Degree in Commerce or Business Administration with finance specialization and experience of at least five years of accounting in a responsible position; (iv) disclose all facilities exceeding thirty per cent of accounts; (v) its equity in its

maintain accounts of leasing operations having regard to the International Accounting Standards notified under sub-section (3) of section 234 of the Ordinance and technical releases issued by Institute of Chartered Accountants of Pakistan;

(vi) create reserve fund to which shall be credited (a) an amount not less than twenty per cent of its after tax profits till such time the reserve fund equals the amount of the paid up capital; and thereafter, a sum not less than five per cent of its after tax profits: Explanation.- Issuance of bonus shares shall only be made from the reserves available after appropriation created under clause (b) and since such bonus shares will increase the paid up capital, the leasing company shall transfer further amounts to the reserves in order to comply with condition of clause (a); (vii) ensure, while granting any facilities, that total facilities availed by any borrower or lessee from Non-Bank Financial Institutions and Banks does not exceed ten times of the equity of the borrower or lessee and obtain copy of accounts relating to the business of each of its borrower/lessee for analysis and record in the following manner, namely :-

(b)

Explanation .- Surplus arising on revaluation of assets determined in accordance with International Accounting Standards by a firm of Chartered Accountants approved by the Commission for this purpose may be considered for the purpose of calculating the exposure limit under this rule. The surplus on revaluation of assets so determined is required to be reflected in the balance sheet of the borrower or lessee. (viii) ensure, while granting any facility exceeding one million rupees, that (a) current asset to current liabilities ratio of the borrower/lessee does not fall below 1:1: or any ratio as prescribed from time to time, however, this condition may be relaxed in case of facilities upto two million rupees by recording reasons itsof.

Provided that current maturities of long term debt not yet due for payment may be excluded from the current liabilities for the purpose of calculating this ratio; (b) (c) long term debt equity ratio does not exceed 60:40 or any other ratio as prescribed; and due weightage is given to credit report relating to the borrower or lessee and his group obtained from Credit Information Bureau of the State Bank of Pakistan. If the credit reports indicate default, the further facilities shall be extended only after recording reasons to do so; Explanation.- "Group" means a set of business companies or concerns under joint control or associated together or subsidiaries of a holding company; and (d) lessee is registered tax payer and has paid its utility bills.

(ix) provide facilities at least five per cent of its fund based facilities to small entrepreneurs. (x) acquire and maintain membership of Leasing Association of Pakistan (LAP) and follow the code of conduct prescribed by the said Association.

(xi) follow guidelines issued to safeguard leasing company against their involvement in money laundering activities and other unlawful trades, it shall add to or reinforce the following precautions, a leasing company may have been taking in this regard; namely :(a) leasing company shall make reasonable efforts to determine the true identity of the customer before extending their services and particular care shall be taken to identify ownership of all accounts and those using safe custody facilities, effective procedures shall be instituted for obtaining identification from new customers and an explicit policy shall be devised to ensure that significant business transactions are not conducted with customers who fail to provide evidence of their Identity; leasing company shall ensure that business is conducted in conformity with high ethical standards and that rules and regulations are adhered to. It is accepted that leasing company normally does not have effective means of knowing whether a transaction stems form or forms part of wrongful activity. Similarly, in an International context, it may be difficult to ensure that cross border transactions on behalf of customers are in

(b)

compliance with the regulations of another country. Nevertheless, leasing company shall not set out to offer services or provide active assistance in transactions which in their opinion are associated with money derived from illegal activities; and (c) leasing company shall establish specific procedures for ascertaining customer status and his sources of earning for monitoring of accounts on a regular basis for checking identities and bonafides of remitters and beneficiaries, for retaining internal record of transactions for future reference. The transactions, which are out of character with the normal operation of the account involving high deposits, withdrawals and transfers, shall be viewed with suspicion and property investigated.

(xii) keep the information upto date provided in annexures to Form I and II by communicating changes and modification therein within fourteen days of such change or modifications. (xiii) provide return on deposits which may be different for different volumes of deposits provided uniformity is observed within each category but deposits etc. of listed companies, recognised charitable trusts and statutory bodies shall, however, be exempt. (2) It shall not (i) make exposure to a single group for more than twenty per cent of the net investment in leasing finance, however, in arriving at exposure per person under this rule, the following shall be excluded, namely :(a) ninety per cent of certificates of deposit and certificates of investments of the lessee under lien with the leasing company; face value of FIBs lodged by the lessee as collateral; and Pak rupee equivalent of the face value of Special US Dollar Bonds converted at official rate, lodged by the lessee as collateral.

(b) (c)

(ii)

allow facilities to any of its directors or to individuals, firms or companies in which it or any of its director is interested as partner, director or guarantor, as the case may be, its chief executive and its major shareholders, including their spouses, parents and children or to firms and companies in which they are interested as

partners, directors or major shareholders of that concern without the approval by the directors of that leasing company: Provided that the director interested in seeking such approval shall not take part in the proceedings of the approval of the facility; (iii) allow unsecured facilities or facilities secured only by guarantees except the facilities provided against bank guarantees, the end use of which will be verified by the leasing company to be productive; Provided that the bank providing guarantee shall have rating grade not lower than BBB; (iv) grant unsecured facilities to or allow facilities on the guarantees of its chief executive, directors and major shareholders including their spouses, parents, and children or to firms and companies in which they are interested as partners, directors or major shareholders of that concern; appoint or elect more than twenty-five percent of its directors from the same family, including spouse, dependent lineal ascendants and descendants and dependent brothers and sisters; undertake the business of real estate or provide funds to the construction companies, builders and developers and companies dealing in real estate: Provided that a leasing company may lease machinery, equipment and vehicles to the construction companies; (vii) (viii) hold, deal, or trade in real estate except for use of leasing company itself; engage in leasing operations pertaining to (a) (b) open land; buildings, other than factory building and office building located within or outside the factory premises to be used exclusively as such by a lessee, subject to a maximum of one hundred and twenty square feet per employee and residential undertaking and warehouses; and furniture or furnishing of any type:

(v)

(vi)

(c)

Provided that the company may lease hard furniture excluding carpets and curtains upto five per cent of its portfolio; (ix) fix the period of lease for less than three years in the case of any lease agreement except in case of computers and other equipment used in information technology; remove any of its records or documents relating to its business from Pakistan to a place outside Pakistan without the prior permission of the Commission;

(x)

(xi) allow facilities for speculative purposes; (xii) make change in its chief executive and board of directors excluding director nominated by creditors and sponsoring financial institutions without prior approval of the Commission; and make investment in un-quoted shares of any company without the approval of the Commission

(xiii)

(3) The companies granted licence before the commencement of these Rules, shall raise the paid up capital to two hundred million rupees by 30th June, 2001. 8. Limits on exposure.- (1) Liabilities, excluding contingent liabilities, of a leasing company shall not exceed seven times of its equity during first two years of its operations and ten times of the equity in the subsequent years. (2) Contingent liabilities of a leasing company shall also not exceed seven times of its equity during the first two years of its operations and ten times of the equity in the subsequent years. 9. Margin against facilities.- (1) Following minimum margins shall be maintained against various facilities and all guarantees will be backed by 100% realizable securities (a) in case of performance bonds, the condition of 100% cover of realizable securities may be relaxed subject to minimum compulsory realizable security cover equivalent to 20% of the amount of the performance bond; in case of guarantees issued against mobilisation advance, the condition of 100% cover of realizable securities may be relaxed subject to the following conditions, namely :(i) guarantees issued should contain a clause that the mobilisation advance shall be released by the beneficiary through the guarantor leasing company only; and

(b)

(ii)

at the time of issuing such a guarantee the beneficiary should sign an agreement with the leasing companies that releases out of mobilisation advance would be covered by realizable assets; and

(c)

in case of bid bonds issued on behalf of domestic consultancy firms bidding for international contracts where the consultancy fees are to be received in foreign exchange, the requirement of 100% cover by realizable securities may be waived off, and this relaxation would also be available to all suppliers of goods and services bidding against international tenders.

(2) No leasing company shall provide unsecured facilities to finance subscription towards floatation of share capital of public limited companies or allow facilities against its own shares or shares of its associated undertaking and subsidiaries thereof or shares of companies not listed on the Stock Exchange and shares of listed companies obtained as collateral shall be subject to the following minimum margins, namely :(a) where the current market value does not exceed the preceding twelve months average market value, 20% of the current market value; where current market value exceeds the preceding twelve months' average market value but does not exceed twice the preceding twelve months' average market value, 40% of the current market value; and Where the current market value exceeds twice the preceding twelve months' average current market value, 50% of the current market value. Provided that no leasing company shall hold shares in any company as pledgee or mortgagee, of an amount exceeding thirty percent of its own equity or thirty per cent of the paid-up capital of that company whichever is less. (3) Certificates of deposit of banks with investment grade will be subject to a margin of 15% and COIs/COMs, TFCs with investment grade rating but not lower than BBB will be subject to a margin of 25% of face value or market value whichever is less. (4) 25%. (5) Facilities against hypothecation shall be subject to a margin of 50%. Facilities against pledge of trading stocks shall be subject to a margin of

(b)

(c)

10. Provisioning for non-performing assets:- Every leasing company shall follow prudential guidelines in the matter of classification of its assets and provisioning there against as specified below: A. Short Term Facilities:Nature Of For Finance Lease, Classificat-ion Operating Lease and Term Loans 1. Overdue Where rentals, profit or mark up or principal are overdue (past due) by 180 days from the due date. 2. Substandard Where rentals, profit or mark up or principal are overdue (past due) by 181 days but less than one year from the due date. Provisions to be made No provision is to be made.

3. Doubtful

Where rentals, profit or mark up or principal are overdue (past due) more than one year but less than two years from due date.

Provision of 20% of the difference resulting from the outstanding balance of net investment in lease finance and principal less the amount of liquid assets realizable without recourse to a Court of Law and forced sale value of leased assets as valued by valuers fulfilling prescribed eligibility criteria, in accordance with the guidelines provided in this rule. Provision of 50% of the difference resulting from the outstanding balance of net investment in lease finance and principal less the amount of liquid assets realizable without recourse to a Court of Law and forced sale value of leased assets as valued by valuers fulfilling prescribed eligibility criteria, in accordance with the guidelines provided in this rule. Provision of 100% of the difference resulting from the outstanding balance of net investment in lease finance and principal less the amount of liquid assets realisable without recourse to a Court of Law and forced sale value of leased assets as valued by valuers fulfilling prescribed eligibility criteria, in accordance

4. Loss

Where rentals, profit or mark up or principal are overdue (past due) beyond two years from the due date.

with the guidelines provided in this rule. B - Long Term Facilities:Nature Of Classification 1.Overdue For Finance Lease/ Operating Lease/ Term Loans Where rentals, profit or mark up or principal are overdue (past due) for one year from the due date. Where rentals, profit or mark up or principal are overdue (past due) by one year but less than two years from the due date. Provisions to be made No provision is to be made.

2.Substandard

Provision of 20% of the difference resulting from the outstanding balance of net investment in lease finance and principal less the amount of liquid assets realizable without recourse to a Court of Law and forced sale value of leased assets as valued by valuers fulfilling prescribed eligibility criteria, in accordance with the guidelines provided in this rule. Provision of 50% of the difference resulting from the outstanding balance of net investment in lease finance and principal less the amount of liquid assets realisable without recourse to a Court of Law and forced sale value of leased assets as valued by valuers fulfilling prescribed eligibility criteria, in accordance with the guidelines provided in this rule. Provision of 100% of the difference resulting from the outstanding balance of

3. Doubtful

Where rentals, profit or mark up or principal are overdue (past due) by more than two years but less than three years.

4. Loss.

Where rentals, profit or mark up or principal are overdue (past due) beyond three years from

the due date.

net investment in lease finance and principal less the amount of liquid assets realisable without recourse to a Court of Law and forced sale value of leased assets as valued by valuers fulfilling prescribed eligibility criteria, in accordance with the guidelines provided in this rule.

Notes.1. Where profit is overdue (past due) by one hundred and eighty days or more from the due date, unrealised profit shall be put in a Suspense Account and shall not be credited to Income Account. 2. Liquid assets mean realizable amount of bank deposits, certificates of deposit, government securities, shares of listed companies, NIT units, certificates of mutual funds, gold ornaments, inventories pledged to leasing companies with possession with 'perfected lien' duly supported with flawless documentation. 3. Subjective evaluation of performing and non-performing lease portfolio shall be made for risk assessment and where considered necessary the category of classification determined on the basis of time based criteria shall be further downgraded. Such evaluation shall be carried out on the basis of adequacy of security inclusive of its realizable value, cash flow of lessee, his operation in the account, documentation covering advances and credit worthiness of the lessee, etc. 4. The rescheduling or restructuring of non-performing lease facilities shall not change the status classification of a lease facilities etc, unless the terms and conditions of rescheduling/restructuring are fully met for a period of at least one year (excluding grace period, if any) from the date of such rescheduling / restructuring. Accordingly, leasing companies are directed to ensure that status of classification as well as provisioning is not changed in relevant reports merely because of the fact that a lease facility has been restructured or rescheduled. However, while reporting to the CIB, such lease facilities may be shown as "rescheduled/restructured" instead of "default". 5. Leasing companies will continue to classify their lease facilities portfolio and make provision there against in accordance with the time based criteria prescribed above. However, where a leasing company wishes to avail of the benefit of collaterals held against lease facilities, they can consider the realizable value of mortgaged or pledged assets for deduction from the outstanding principal amount of lease rentals against which such assets are mortgaged/pledged, before making any provisions. The

realizable value shall be the value that could currently be obtained by selling the mortgaged or pledged assets in a forced/distressed sale conditions. Accordingly, leasing companies shall take into account only forced sale value into consideration while determining the required provisions. Lease rentals against which securities are not available, or which have not been valued according to these guidelines and verified by the external auditors, shall continue to be classified and provided for according to the time-based criteria. Leasing companies shall follow the following uniform criteria, for determining the realizable value of mortgaged, pledged or leased assets, namely:(i) Only leased assets having registered mortgage, equitable mortgage (where NOC for creating further charge has not been issued by leasing company) and pledged/leased assets shall be considered. Assets having pari passu charge shall be considered on proportionate basis; hypothecated assets and assets with second charge and floating charge shall not be considered; valuations shall be carried out by an independent professional valuer who should be listed on the panel of valuers mainted by the Leasing Association of Pakistan (LAP) for this purpose. LAP shall lay down the minimum eligibility criteria with the prior approval of the Securities & Exchange Commission of Pakistan for placement of valuers on the panel to be maintained by it. The valuer while assigning any values to the mortgaged, pledged or leased assets, shall take into account all relevant factors affecting the saleability of such assets including any difficulty in obtaining their possession, their location and condition and the prevailing economic conditions in the relevant sector, business or industry. The realizable values of mortgaged, pledged or leased assets so determined by the valuers must have to be a reasonably good estimate of the amount that could currently be obtained by selling such assets in a forced/distressed sale condition. The valuers should also mention in their report the assumptions made, the calculations/formulae/basis used and the method adopted in determination of the realisable values; valuation shall be done at least once in three years. For example, any valuation done on 1st November, 1999 would be valid for consideration for the accounting periods ending on December 31, 1999, and December 31, 2001 and for subsequent accounting periods a fresh valuation would be required. If valuation is older than three years as explained above, a re-valuation should be done, otherwise the valuation shall be taken as nil; the categories of mortgaged, pledged or leased assets to be considered for valuation along with discounting factors to be applied would be as under (no other assets shall be taken into consideration) :(a) Liquid assets : Valuation of Liquid Assets, excluding pledged stocks, which are dealt with at (d) below, shall be determined by the leasing company itself and verified by the external auditors.

(ii) (iii)

(iv)

(v)

However, in the case of pledged shares of listed companies values should be taken at market value as per active list of Stock Exchange on the balance sheet date and as per guidelines given in the TR-23 issued by the Institute of Chartered Accountants of Pakistan. Moreover, valuation of shares pledged against lease rentals after issuance of this circular shall be considered only if these have been routed through Central Depository Company of Pakistan (CDC), otherwise these will not be admissible for deduction as liquid assets while determining required provisions; (b) Land and building : Valuation of land and buildings would be accepted as determined by the valuers in accordance with the criteria given at point 5(iii) above and no further discounting factor would be applied on forced sale value determined by them; and Plant and machinery : Entries of classified lessees shall be divided into following categories at the balance sheet date and discounting factors shall be applied to forced sale value as specified below : Category A. In operation Discounting factors to be applied to forced state value No discussing factors to be applied 15% of forced sale value on the date of closure. 1st year after closure - 25% of forced sale value. 2nd year - 50% of forced sale value. After valuation - 1st year 25% of forced sale value. 2nd year - 50% of forced sale value.

(c)

B. In operation at the time of valuation but now closed/in liquidation C. Closed / in liquidation at the time of valuation and no change in situation. (d)

Pledged stocks : In case of pledged stocks of perishable and nonperishable goods, forced sale value should be provided by valuers, which should not be more than six months old, at each balance sheet date. The goods should be perfectly pledged, the operation of the godowns should be in the control of the leasing company and regular valid insurance and other documents should be available. In case of perishable goods, the valuer should also give the approximate date when these are expected to be of no value.

(vi)

for valuations of mortgaged or leased assets carried out within a period of twelve months prior to December 31, 1999, these may be considered

provided they were carried out by an independent professional valuer and a revised certificate is obtained from the valuer regarding the forced sale value of the assets as on the date the valuation was carried out. These valuations should then be subject to the discounting percentages and other criteria as laid down in this Circular. (vii) the values of mortgaged/pledged/leased assets determined by the valuers shall be subject to verification by the external auditors, who may reject cases of valuation, which in their opinion, do not appear to have been professionally carried out and values determined are unreasonable, or in the case of which valid documentation of mortgage, pledge or lease, supported by legal opinion wherever required, is not available on record.

6. Investments and other assets.- Subjective evaluation of lease portfolio and other assets shall be carried out by the leasing company. Classification of such assets and provision required thereagainst shall be determined keeping in view the risk involved and the requirements of the International Accounting Standards. 7. Timing of creating provisions.- Leasing companies shall review, at least on a quarterly basis, the collectibility of their lease rentals portfolio and shall properly document the evaluation so made. Shortfall in provisioning, if any, determined as a result of the quarterly assessment shall be provided for immediately in their books of accounts by the leasing companies. 8. Verification by the Auditors.- The external auditors as a part of their annual audits of leasing companies shall verify that all requirements of this rule in classification of assets and determination of provisions required thereagainst have been complied with. The Securities and Exchange Commission of Pakistan shall also check the adequacy of provisioning during on-site inspection. 11. Overdues and defaults - recovery thereof:- (1) Every leasing company shall furnish the Commission with a list of defaulters on prescribed format, on quarterly basis. A list of rescheduled and restructured facilities would also be submitted to the Commission in the similar manner on prescribed format. A person, whether natural or juristic, shall be deemed to be defaulter if he (or his dependent family members or concerns owned or controlled by him or concerns in which he or his dependent family members are major shareholders) has failed to pay off or liquidate any fiduciary obligation towards any leasing company in Pakistan as was agreed upon or required under the terms and conditions of availment of the financing facility or to do or perform an act agreed to or undertaken in writing to be done or performed by him and such failure has continued for a period of 360 days from the date on which he was required to make the payment or to do or perform the act. (2) Every leasing company shall nominate an officer as recovery officer or constitute a section as recovery section depending upon the magnitude of defaults.

(3) Besides the measures presently instituted by each leasing company, the leasing company will set quarterly recovery targets as a percentage of the overdue obligations and communicate the same on quarterly basis to the Commission. (4) A progress report on the recovery in relation to the targets shall be submitted to the Commission on quarterly basis. The leasing company will also be required to explain deficiency if any, in meeting the targets and the strategies evolved with a view to ensuring achievement of subsequent targets. (5) Wherever considered legally appropriate by the leasing company, cases of default may be referred to the Courts. The list of such cases and progress of recovery shall also be sent to the Commission on a quarterly basis. l2. Bar to certain transactions.- No leasing company shall (a) transfer ownership of controlling shares, merge with, acquire or take over any other leasing company unless it has obtained prior approval of the Commission to the scheme of such merger, acquisition or take over; or employ as a broker, directly or indirectly, any of its directors, officers, or employees, or a person, or a major shareholder who beneficially owns, whether individually or in association with close relatives more than five percent either of the equity or other securities with voting rights, if any, issued by the leasing company. Explanation.- "Relative" means spouse, brothers, sisters, father, mother, grand father, grand mother, other lineal ascendants and descendants, sons, daughters, grand sons and grand daughters. 13. Rate of mark up and fees.- A leasing company may charge rental, mark up, commitment fee or other charges on its facilities as the case may be in accordance with the prevailing rates. l4. Insurance coverage.- A leasing company shall (a) obtain sufficient insurance coverage on its own or on its clients benefit against any losses that may be incurred as a result of employees fraud or gross negligence; ensure that properties being financed by it have adequate insurance cover; and provide full insurance cover for its deposits/COIs etc. of less than one hundred thousand rupees.

(b)

(b) (c)

15. Internal audit.- Every leasing company shall have an Internal Audit Department whose head will report to its chief executive directly and shall, inter alia, be responsible for compliance with these rules and establish an effective means of testing, checking and compliance with its policy and procedures established by it. 16. Places of business.- (1) A leasing company may open further places of business but it shall intimate the same to the Commission within fifteen days. (2) A Leasing Company shall also intimate to the Commission the closure of any of its places of business within fifteen days. 17. Issue of certificates of investment.- (1) A leasing company which fulfils the following conditions, may apply to the Commission for its permission to issue certificates of investment, namely:(a) (b) (c) the company has been actively engaged in leasing business for a period of two years; the corporate and fiduciary conduct of the company and its directors has been satisfactory; and the company has obtained credit rating of minimum investment grade from a credit rating agency registered with the Commission under the Securities and Exchange Ordinance, 1969 (XVII of 1969), and such credit rating shall be updated each year during the currency of the issue: Provided that the company shall publish the credit rating in each financial statement, advertisement and brochures. (2) If the Commission is satisfied that the company, fulfils the conditions of eligibility specified in sub-rule (1), it may give permission to such company to issue certificates of investment. (3) All leasing companies issuing certificates of investment shall observe the following conditions, namely:(a) (b) a certificate of investment issued under these rules shall be registered in the name of the person to whom it is issued; the maturity period of certificate of investment shall not be less than three months and more than five years: Provided that a certificate shall be redeemable before its maturity period but no return shall be paid if redeemed earlier than three months;

(c)

no advertisement inviting the general public for making investment in such certificates shall be published unless prior approval of the Commission to this effect has been obtained and such advertisement shall contain the credit rating; Provided that if no decision of the Commission is conveyed to the leasing company within fifteen days of the receipt of application, the advertisement shall be deemed to have been cleared for publication; and

(d)

not less than fifteen per cent of the resources raised through certificates of investment shall either be invested in registered National Investment Trust units, Government securities or listed securities subject to the conditions as prescribed in the rules made for investment of provident fund in listed securities excluding the certificates of investment held by financial institutions.

18. Eligibility of banks and NBFIs to undertake leasing business .- (1) Banks and NBFIs may undertake leasing business subject to licence to be granted by the Commission. (2) The Commission may, while granting the licence under sub-rule (1), impose such conditions as it may deem necessary. l9. Submission of reports, etc..- (1)The Commission may, by general or special order, require a leasing company, to prepare and send to members, the registrar, any authority, a stock exchange and any other person such periodical statement of accounts, information or other reports in such forms and manner and within such time, as may be specified in the order. (2) The Commission shall monitor the general financial condition of a leasing company, and, at its discretion, may order special audit and appoint an auditor to carry out detailed scrutiny of the affairs of the company, or appoint both an auditor and an inspector, provided that the Commission may, during the pendency of the scrutiny, pass such interim orders and directions as may be deemed appropriate. (3) On receipt of the special audit report or report from the inspector, the Commission may direct the company to do or to abstain from doing certain acts and issue directives for immediate compliance which shall forthwith be complied. (4) Every leasing company shall submit returns as may be prescribed by the Commission from time to time. Whoever fails or refuses to comply with, or 20. Penalties.- (1) contravenes any provision of these rules, or knowingly and willfully authorises or permits such failure, refusal or contravention shall, in addition to any other liability under the Ordinance, be also punishable with fine which may extend to two thousand rupees and where, the contravention is a continuing one, with or further fine which may extend

to one hundred rupees for every day after first during which such contravention continues. (2) Notwithstanding anything contained in sub-rule (1), in case of contravention of any provision of these rules, the Commission may cancel the licence of the leasing company after issuing a show cause notice and giving such company an opportunity of being heard or pass any other order deemed appropriate by the Commission. 21. Repeal.- The Leasing Companies (Establishment and Regulation) Rules, 1996 are hereby repealed. FORM-I [See rule 4(1)] APPLICATION FOR PERMISSION TO FORM A LEASING COMPANY Dated, the To The Securities and Exchange Commission of Pakistan, Islamabad. Dear Sir, We hereby apply for grant of permission under rule 4 of the Leasing Companies (Establishment and Regulation) Rules, 2000, to form a leasing company under the name and style of ---------------------------------------------------------------------------------------The information and documents as required in the Annexure to this form duly verified and signed by all promoters and proposed directors along with five spare copies of this application and an affidavit by them as to the correctness of the details, is submitted. We undertake to keep this information upto date by communicating changes or modifications therein within fourteen days of such changes/modifications. A receipt of Rs.---------------------being the processing fee, deposited in-------------on ------------------------is enclosed. Yours faithfully, -----------------------Verification by Oath Commissioner.

ANNEXURE [See rule 4(1) and 7(1) (xiii)] INFORMATION TO BE SUPPLIED FOR OBTAINING PERMISSION TO FORM A LEASING COMPANY AND SUBSEQUENT CHANGE IN DIRECTORSHIP AND CHIEF EXECUTIVE 1. Full name, former name if any, fathers or husbands name, nationality, residential and business address, national tax number, present occupation of each sponsor, proposed director, proposed chief executive and proposed chairman of the Board. (Institutional sponsors shall mention their names and addresses only instead of giving all these particulars of their nominee directors). 2. Names and addresses of companies, firms and other organizations of which the aforesaid sponsors, proposed chief executive and proposed chairman are or have been directors, partners or office holders during the last ten years. Copies of annual accounts of such companies and firms for the last three years alongwith summary of their paid-up share capital, free reserves, profit after tax and dividend payment to be provided. 3. Financial standing, educational as well as professional qualifications and experience of persons mentioned in paragraph 1 above, supported by documentary evidence. 4. Percentage of capital, each sponsor proposes to contribute in the proposed company. 5. Feasibility report of the proposed company.

6. Evidence of payment of income tax and wealth tax by the sponsors in individual capacity as well as by the companies, firms, etc., wherein they are or have been directors during the preceding five years. 7. Net-worth certificate of each sponsor supported by a duly authenticated copy of the latest wealth statement filed with the taxation department. In the case of sponsors/directors residing in countries where filing of wealth statement is not the requirement of law, a certificate of personal net-worth and general reputation issued by a bank of international repute shall be acceptable. 8. 9. 10. Names of the bankers of the sponsors alongwith their account numbers. Draft of the Memorandum and Articles of Association. Affidavit from each person mentioned in paragraph 1 above, stating that(i) he has not been associated with any illegal banking business, deposit taking or financial dealings;

(ii)

he and companies in which he is a director or major shareholder have no over-due loans or installments outstanding towards banks or other financial institutions;

(iii) neither he nor companies in which he is a director or major shareholder has defaulted in paying taxes as on the date of application; (iv) he has not been sponsor, director or chief executive of a defaulting cooperative finance society or finance company; (v) he has never been convicted of fraud or breach of trust or of an offense involving moral turpitude or removed from service for misconduct;

(vi) he has neither been adjudged an insolvent nor has defaulted in making payments, to his creditors; (vii) his net-worth is not less than twice the amount to be subscribed by him personally (not applicable to a nominee director). FORM-II [See rule 6(2) and 7(1)(xiii)} APPLICATION OBTAINING FOR LICENCE TO OPERATE AS A LEASING COMPANY Dated, the-------------To, The Securities & Exchange Commission of Pakistan, Islamabad. Dear Sir, We hereby apply for grant of licence under rule 6 of the Leasing Companies (Establishment and Regulation) Rules, 2000, to operate as a leasing company. 2. We hereby furnish the following information:(a) (b) (c) (d) (e) (f) (g) (h) Date of incorporation as a limited company. Authorised, subscribed and paid-up share capital of the company (sponsors' equity indicated separately). Names and addresses of directors and number of shares held by each of them. Directors' interest, direct or indirect, in any other company(ies) with details of such interest. Details of persons or group controlling the company including major shareholders with number and value of shares held. Name(s) of holding, subsidiary and associated undertaking(s), if any. Details of qualified staff engaged. Reasons for selecting the proposed place of business with statistical data.

(i)

Additional facts in support of this application.

3. Certified copies of the Memorandum and Articles of Association and Certificate of Incorporation are enclosed. 4. An affidavit as to the correctness of the above information by the chief executive and two director is also furnished herewith. We undertake to keep this information upto date by communicating changes or modifications therein within fourteen days of such change or modifications. Yours faithfully, Signature----------------(To be signed by all the directors) FORM -III [See rule 6 (3)] Securities & Exchange Commission of Pakistan Islamabad, Dated, the __________ Registration No. _________ LICENCE TO CARRY ON THE BUSINESS OF A LEASING COMPANY The Securities & Exchange Commission of Pakistan having considered the application for grant of licence under rule 6 of the Leasing Companies (Establishment and Regulation) Rules, 2000, by *_____________________________________ and being satisfied that the said * ________________________________________ is eligible for the licence , hereby grants, in exercise of the powers conferred by sub-rule (3) of rule 6 of the Leasing Companies (Establishment and Regulation) Rules, 2000, licence to * ______________________________________ subject to the conditions stated herein below or as may be prescribed or imposed hereafter. Signature of the Officer ______________________________________________________ * Name of the Company ---------------------------------------------------------------------------------------------------------------(HIZBULLAH SIDDIQUI) Joint Director No.F. 3(5A)/Misc/LES/96 dated _______ 22nd September, 2000

The Gazette of Pakistan

EXTRAORDINARY PUBLISHED BY AUTHORITY Islamabad, Saturday, March 10, 2001

Part II Statutory Notifications (S.R.O.) Government of Pakistan SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN NOTIFICATION Islamabad, the 9th March, 2001 S.R.O. 150 (I)/2001. -In exercise of the powers conferred by section 33 of the Securities and Exchange Ordinance, 1969 (XVII of 1969), read with clause (b) of section 43 of the Securities and Exchange Commission of Pakistan Act, 1997(XLII of 1997), the Securities and Exchange Commission of Pakistan, with the approval of the Federal Government is pleased to make the following rules, namely:-

MEMBERS AGENTS AND TRADERS (ELIGIBILITY STANDARDS) RULES, 2001 1. Short title and commencement. --(1) These rules may be called the Members Agents and Traders (Eligibility Standards) Rules, 2001. (2) They shall come into force at once. 2. Definitions. -In these rules, unless there is anything repugnant in the subject of context, -(a) agent means a person appointed by a member of a Stock Exchange to act on his behalf for the purpose recognized by a stock exchange and includes a sub-broker or head of a branch office; (b) Commission means Securities and Exchange Commission of Pakistan; (c) trader means an employee of a member who is authorized by such member to execute trade of the investors through the automated trading system in such exchange. 3. Eligibility criteria. -(1) The eligibility criteria for registration as an agent shall be as follows, namely :In the case of an individual, the applicant: (a) is not less than 21 years of age; (b) is a citizen of Pakistan;

(c) is not a lunatic or a person of unsound mind; (d) has not been convicted of any offence involving fraud or breach of trust; (e) has not been removed as an agent by a member of a stock exchange for fraud or breach of trust and furnish a certificate of that effect from his previous employee; (f) has at least passed graduation or equivalent examination from an institution recognized by the Government: Provided that the Commission may relax the educational qualification on merits having regard to the applicants experience; (g) has attended a course for the agents prescribed by the stock exchange and approved by the Commission; (h) has at least two years experience in a related field such as banking, accountancy or in a brokers office; (i) has faithfully complied with all general and specific directives of the Commission; and (j) in the case of partnership a firm or a body corporate, the partners or directors, as the case may be, shall comply with the requirements contained in clause (i). (2) The aforesaid conditions shall also apply to the trader employed by a member.

ABDUL HALEEM JADRAN Joint Director

STATUTORY NOTIFICATION (S.R.O)

Government of Pakistan SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN

PUBLISHED BY AUTHORITY

Islamabad the, 26 April, 2000

S. R. O. No. 250 /2001. In exercise of the powers conferred by section 33 of the Securities and Exchange Ordinance, 1969 (XVII of 1969), read with clause (b) of section 43 of the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997), the Securities and Exchange Commission of Pakistan, with the approval of the Federal Government, is pleased to make the following rules, namely:Stock Exchange Members (Inspection of Books and Record) Rules , 2001

1. Short title, commencement and application.i. These rules may be called the Stock Exchange

ii. iii. 2. Definitions.- In these Rules, unless there is anything repugnant in the subject or context,a. Branch office means an office, branch or shop opened and maintained by a member within or outside the premises of a stock exchange for conducting the business and trading of shares and securities; b. Central Depository Companies Regulations means the regulations of a central depository company registered with the Commission under the Central Depository Companies (Establishment and Regulation) Rules, 1996; c. Central Depository System means the central depository system established under section 4 of the Central Depositories Act, 1997 (XIX of 1997); and d. member means a member of a stock exchange. i. All other words and expressions used but not defined in these rules shall have the same meaning as are assigned to them in the Securities and Exchange Ordinance, 1969 (XVII of 1969), the Companies Ordinance, 1984 (XLVII of 1984), or the Central Depositories Act, 1997 (XIX of 1997). 3. Inspection by a member.- The Commission may order inspection of books and record required to be maintained by a member of stock exchange under these rules. 4. Procedure for inspection.-

Members (Inspection of Books and Record) Rules, 2001. They shall come into force at once. They shall apply to all members of the stock exchanges in Pakistan.

As and when the Commission decides to undertake an inspection, a notice of fifteen days shall be given to the member of the exchange for such purpose. Provided that the notice, as aforesaid, shall not be required if the Commission is satisfied that immediate inspection is necessary in the interest of investors and the securities market. i. The Commission may appoint one or more persons as inspectors to inspect the books and record of a member of a stock exchange. 5. Obligations of a member.. Every director, proprietor, partner, officer and employee of the member of stock exchange, who is being inspected, shall produce such books of accounts, record and other documents under his custody or control with information relating to transaction in securities market within such time as may be required by the person inspecting the record. i. The member, referred to in sub-rule(1) shall, in addition to the record required to be maintained under the Securities and Exchange Rules, 1971, maintain and provide the following record and documents for inspection to the person authorized by the Commission for the purpose, namely:. documents relating to opening of the sub-account of the customers with the Central Depository Company of Pakistan Limited; a. documents of sub-account holders and the group account holders as per requirement of the Central Depository Company regulations; b. documents relating to Zakat status of a customer having an account with the Central Depository Company; c. written consent of clients in respect of contracts entered into as principals; d. margin deposit book; e. registers of accounts of agents; f. an agreement with an agent specifying the scope of authority and responsibilities of the member and his agent. g. record of pledging or arranging for the pledging of any security carried for the account of any customer, whether physically held or in the Central Depository System with a commercial bank; h. record of extension or maintenance of credit or arranging for the extension or maintenance of credit to the customers for the purpose of purchasing or carrying any security; i. record of borrowing on any security or lending or arranging for the lending of any security carried for the account of the customer; j. record of dealing in foreign currencies as a dealer duly authorized by the State Bank of Pakistan within the brokerage house at the stock exchange premises; k. record of establishment of branch offices within or outside the premises of the stock exchange with the following information, namely:l. has been suspended by a stock exchange, i. Location of the branch offices; ii. intimation to the stock exchange of such offices;

ii.

status of the person authorized to manage the branch office whether as an authorized agent or an employee as per the Stock Exchange Regulations. iv. proof of business being done at the branch office in the name of the member; v. authority given to the agent or employee to perform all acts on behalf of the member; vi. proof of maintenance of the branch offices bank account in the name of the member; vii. proof of proper maintenance of accounts of the customers at the branch offices; and viii. any other documents and records required to be maintained under regulations made by the stock exchange. A member shall allow a person carrying out inspection to have reasonable excess to the premises occupied by him or any other person on his behalf and also extend reasonable facility for examining any books, record, documents computer-data in possession of the member or any other person and also provide copies of documents or other materials which, in the opinion of the person carrying the inspection, are relevant.

iii.

Every member shall intimate to the Commission the place where the books of accounts, records and documents are maintained. iv. WWithout prejudice to sub-rule (1), every member shall, after the close of each accounting period furnish to the Commission, if so required, as soon as possible but not later than six months from the close of the said period, a copy of the audited balance sheet and profit and loss account, as at the end of the said accounting period. v. The books of account and other records maintained shall be preserved for a minimum period of five years. 6. Submission of inspection report.. A person authorized to carry inspection shall submit his report to the Commission within the time specified in the order. i. A person carrying out the inspection shall be entitled to examine or record statements of any member, director, partner, proprietor and employee of the member. ii. The inspection report shall be in accordance with the terms of reference given in the order of inspection. In addition, specific findings or views of the authorized person shall also be given in the report about the maintenance of books and record in accordance with these rules. 7. Communication of findings.. The Commission shall communicate findings of the inspection to the member within fifteen days of the submission of inspection report. i. The Commission shall provide an opportunity of being heard to the member concerned before taking any action under the law in the light of any findings of the inspection. 8. Action on findings.- On receipt of explanation, if any, from a member, inspected under these rules, the Commission may require such member to take such measures as it may deem fit in the interest of the securities market

iii.

for due compliance with the provisions of the Securities and Exchange Ordinance, 1969 and the rules made thereunder. F. No. 1(11)CF/POL/99 (ABDUL Joint Director HALEEM JADRAN)

GOVERNMENT OF PAKISTAN SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN Islamabad, the May 10, 2001 NOTIFICATION S.R.O. 300(1)/2001.-- In exercise of the powers conferred by section 506 of the Companies Ordinance, 1984 (XLVII of 1984), and clause (b) of section 43 of the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997), the Securities and Exchange Commission of Pakistan, with the approval of the Federal Government, hereby makes the following rules, the same having been published previously as required by the said section 506, namely:1. Short title, commencement and application.-- (1) These rules may be called the Public Companies (Employees Stock Option Scheme) Rules, 2001. (2) They shall come into force at once. (3) They shall apply to all public companies. 2. Definitions.-- (1) In these rules, unless there is anything repugnant in the subject or context,(a) Commission" means the Securities and Exchange Commission of Pakistan; (b) "Compensation Committee" means a Compensation Committee constituted under rule 4; (c) "employee" means(i) a regular employee of a company working in Pakistan or out of Pakistan; (ii) an executive director who is on pay roll of a company; or (iii) a chief executive who is on pay roll of a company; (e) "employees compensation" means the total cost incurred by a company towards gross salary of its employees; (f) "exercise" means making of an application by an employee to a company for issue of shares against option vested in him in pursuance of a Scheme; (g) "exercise period" means the time period after vesting within which an employee should exercise his right to apply for shares against an option vested in hi in pursuance of the Scheme; (h) "exercise price" means the price payable by an employee for exercising an option granted to him in pursuance of a Scheme;

(i) "independent director" means a director of a company, not being a whole time director and who is neither a promoter nor belongs to a promoter group; (j) "market price" in relating to shares on a given date, means the closing price of the shares on that date on the stock exchange on which the shares of a company are listed; Explanation.-- If the shares are listed on more than one stock exchange, but quoted only on one stock exchange on a given date, then the price on that stock exchange shall be considered. If the share price is quoted on more than one stock exchanges, then the stock exchange where there is highest trading volume on that date shall be considered. If share price not quoted on a given date, then the share price on the last trading day shall be considered. (k) "option" means a right but not an obligation granted to an employee in pursuance of a Scheme to apply for shares of a company at a pre-determined price; (l) "promoter" means (i) the person or persons who are in over-all control of a company; (ii) the person or persons who are instrumental in the formation of a company or the shares to public; or (iii) the person or persons named in the offer document as directors: Provided that a director or an officer of a company, if he is acting as such only in his professional capacity, shall not be deemed to be a promoter; Explanation.-- Where a promoter of a company is a body corporate, the promoters of that body corporate shall also be deemed to be promoters of the company. (m) "Scheme" means the Employees Stock Option Scheme approved by the Commission and introduced under these rules; (n) "share" means equity shares and securities convertible into equity shares and shall include American Depository Receipts (ADRs), Global Depository Receipts (GDRs) or other depository receipts representing underlying equity shares or securities convertible into equity shares; (o) "vesting" means exercise of right to apply for shares of a company; ad (p) "vesting period" means the period during which the vesting of an option granted to an employee in pursuance of a Scheme takes place. (2) All other words and expressions used but not defined in these rules shall have the same meaning as are assigned to them in the Securities and Exchange Ordinance, 1969 (XVII of 1969), or the Companies Ordinance, 1984 (XLVII of 1984). 3. Ineligibility to participate in a Scheme.-- Only regular employees who are no

the pay roll of a company shall be eligible to participate in a Scheme. 4. Compensation Committee.-- (1) No Schedule shall be offered unless the company constitutes a Compensation Committee for administration and superintendent of the Scheme. (2) The Compensation Committee shall be a Committee appointed by the Board of Directors but shall not include the directors who can be classified as employees of a company or are on its pay roll. 5. Powers and functioning of Compensation Committee.- (1) The Compensation Committee shall, inter alia, formulate the detailed terms and conditions of a Scheme including the following, namely:(i) quantum of option to be granted under a Scheme to each employee and in aggregate; (ii) conditions under which option vested in an employee may lapse in case of termination of employment of misconduct; (iii) exercise period within which an employee should exercise option and that option shall lapse on failure to exercise the same within the exercise period; (iv) specified time period within which an employee shall exercise vested options in the event of termination from service or resignation; (v) right of an employee to exercise all options vested in him at one time or at various points of time within an exercise period; (vi) procedure for making a fair an reasonable adjustment to the number of options and to an exercise price in case of rights issues, bonus issues and other corporate actions; (vii) grant, vesting and exercise of option in case of an employee who is on long leave; and (viii) procedure for cashless exercise of options. (2) The Compensation Committee shall make suitable policies and systems to ensure that there is no violation of insider trading provisions of the Securities and Exchange Ordinance, 1969 (XVII of 1969), and the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997), or the rules made under those laws. 6. Shareholders approval.-- (1) No Scheme shall be offered to employees of a company unless shareholders of the company approve the Scheme by passing a special resolution in the general meeting. (2) The statement of facts annexed to a notice and resolution proposed to be passed in a general meeting for a Scheme shall, inter alia, contain the following information, namely:-

(a) total number of options to be granted; (b) identification of classes of employees entitled to participate in the Scheme; (c) requirements of vesting and period of vesting; (d) maximum period within which any option shall be vested; (e) exercise price or pricing formula; (f) exercise period ad process of exercise; (g) appraisal process for determining eligibility of an employee to the Scheme. (h) maximum number of options to be issued per employee and in aggregate; and (i) a statement to the effect that the company shall conform to the accounting policies specified in rule 13. (3) Approval of shareholders by way of separate resolution in a general meeting shall be obtained by a company in case of (a) grant of option to employees of a subsidiary or holding company; and (b) grant of option to identified employees, during any one year, equal to or exceeding one per cent of the issued capital (excluding outstanding conversions) of the company at the time of grant of option. 7. Variation of terms of a Scheme.-- (1) A company shall not vary the terms of a Scheme in any manner which may be detrimental to the interests of its employees. (2) A company may be special resolution in a general meeting vary the terms of a Scheme offered pursuant to an earlier resolution of a general body but not yet exercised by its employees provided such variation is not prejudicial to the interests of the option holders. (3) The provisions of sub-rule (3) of rule 6 shall apply to such variation of terms as they do to the original grant of option. 8. Pricing.-- A company granting option to its employees pursuant to a Scheme shall have the freedom to determine the exercise price subject to conforming to the accounting policies specified in rule 13. 9. Lock-in period and rights of an option-holder.-- (1) There shall be a minimum period of one year between the grant of option and vesting of option. (2) A company shall have the freedom to specify the lock-in period for the shares issued pursuant to an exercise of option.

(3) An employee shall not have right to receive any dividend or to vote or in any manner enjoy the benefits of a shareholder in respect of option granted to him, till shares and issued to him on exercise of option. 10. Consequence of failure to exercise option.-- In case of failure to exercise the option, the right granted shall lapse. 11. Option not transferable.-- (1) An option granted to an employee shall not be transferable to any other person except to an entitled employee of a company. (2) Under the cashless system of exercise, a company may itself fund the payment of exercise price which shall be adjusted against the sale proceeds of some or all the shares. (3) An option granted to an employee shall not be pledged, hypothecated, mortgaged or otherwise alienated in any other manner. (4) In the event of death of an employee while in employment of a company, all options granted to him till the date of his death shall vest in his legal heirs or nominees. (5) In case an employee suffers a permanent incapacity while in employment of a company, all options granted to hi, as on the date of permanent incapacitation, shall vest in him on that day. (6) In the event of resignation or termination of service of an employee, all options to vested as on that day shall expire: Provided, the employee shall, subject to the terms and conditions of a Scheme formulated in terms of rule 5, be entitled to retain all the vested options. 12. Disclosure in the Board of Directors Report.-- The Board of Directors, shall, inter alia, disclose in the anexure to the Annual Report, the following details of a Scheme, namely:(a) Options granted; (b) Pricing formula; (c) Options vested; (d) Options exercised; (e) Total number of shares arising as a result of exercise of options; (f) Options lapsed; (g) Variation of terms of options; (h) Money received against exercise of options;

(i) Employee-wise details of options granted to (i) Senior managerial personnel: (ii) any other employee who receives a grant in any one year of option amounting to five per cent or more of option granted during that year; and (iii) Identified employees who were granted option, during any one year, equal to or exceeding one per cent of the issued capital (excluding outstanding conversions) of a company at the time of grant; and (k) diluted earnings per share pursuant to issue of shares on exercise of option calculated in accordance with International Accounting Standard No. 33. 13. Accounting policies-- Every company that has passed a special resolution for a Scheme under these rules, shall comply with the accounting policies specified in the Schedule to these rules. 14. Certificate from auditors.-- In the case of every company that has passed a special resolution for a Scheme, the Board of Directors shall at each annual general meeting place before the shareholders, a certificate from the auditors of the company that the Scheme has been implemented in accordance with these rules and in accordance with the resolution of the company passed in general meeting. 15. Options outstanding at public issue.-- (1) If any options is outstanding at the time of an initial public offering by a company, the promoters contribution shall be calculated with reference to the enlarged capital which would arise on exercise of all vested options. (2) If any options granted to employees in pursuance of a Scheme are outstanding at the time of initial public offering, the offering document of a company shall disclose all the information specified in rule 12. 16. Preferential allotment.-- Nothing in these rules shall apply to shares issued to employees at the time of public offering through the prospectus of a company. 17. Relaxation of rules.-- Where the Commission is satisfied that it is not practicable to comply with any requirement of these rules in a particular case or class of cases, the Commission may, for reasons to be recorded in writing relax such requirement subject to such conditions as it may deem fit. 18. Penalty.-- Whoever fails or refuses to comply with, or contravenes any provision of these rules, or knowingly and willfully authorizes or permits such failure, refusal or contravention, shall, in addition to any other liability under the Companies Ordinance, 1984 (XLVII of 1984), be also punishable with a fine not exceeding two thousand rupees, and in case of continuing failure, refusal or contravention, to a further fine not exceeding one hundred rupees for every day after the first during which such failure, refusal or contravention continues.

THE SCHEDULE [See rule 13)] ACCOUNTING POLICIES FOR A SCHEME 1. In respect of options granted during any accounting period, the accounting value of the options shall be treated as another form of employee compensation in the financial statements of a company. 2. The accounting value of options shall be equal to the aggregate, over all employee stock options granted during the accounting period, of the fair value of the options. Explanation.-- For the purposes of paragraph 2,-(a) Fair value means an option discount, or, if a company so chooses, the value of an option using the Black Scholes formula or other similar valuation method; and (b) Option discount means the excess of market price of the share at the date of grant of an option under a Scheme over exercise price of the option (including up-front payment, if any). 3. Where an accounting value is accounted for as employee compensation is accordance with paragraph 2, the amount shall be amortized on a straight-line basis over the vesting period. 4. When an unvested option lapses by virtue of an employee not conforming to the vesting conditions after the accounting value of an option has already been accounted for as employee compensation, this accounting treatment shall be reversed by a credit to employee compensation expense equal to the amortized portion of the accounting value of the lapsed options and a credit to deferred employee compensation expense equal to the unamortized portion. 5. When a vested option lapses on expiry of an exercise period, after the fair value of an option has already been accounted for as employee compensation, this accounting treatment shall be reversed by a credit to employee compensation expense. [No.1(25)CF/POL/99] Sd/(ABDUL HALEEM JADRAN) Joint Director

GOVERNMENT OF PAKISTAN SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN Islamabad, May 10, 2001 NOTIFICATION S.R.O. 299 (1)/2001.-- In exercise of the powers conferred by clause (b) of section 43 of the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997), read with section 5A of the Securities and Exchange Ordinance, 1969 (XVII of 1969), the Securities and Exchange Commission of Pakistan, with the approval of the Federal Government, hereby makes the following rules, namely:1. Short title and commencement.-- (1) These rules may be called the Brokers and Agents Registration Rules, 2001. (2) They shall come into force at once. 2. Definitions.-- (1) In these rules, unless there is anything repugnant in the subject or context,-(a) "Act" means the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997); (b) "clearing house" means a clearing house of stock exchange performing the functions o clearing and settling trades in securities or a clearing company established for such purpose; (c) "Commission" means the Securities and Exchange Commission of Pakistan; (d) "enquiry officer" means any officer of the Commission, or any other person, who is appointed by the Commission under the Ordinance or the Act; (e) "Ordinance" means the Securities and Exchange Ordinance, 1969 (XVII of 1969); (f) "regulations" means the regulations made by a Stock Exchange ; and (g) "Schedule" means the Schedule annexed to these rules. (2) All other words and expressions used but not defined in these rules shall have the same meaning as are assigned to them in the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997), and the Securities and Exchange Ordinance, 1969 (XVII of 1969). 3. Application for registration.-- (1) A member desirous of acting as a broker shall made an application to the Commission in Form A as set out in the First Schedule, for grant of a certificate of registration through the stock exchange of which he is a member. (2) An application for registration under sub-rule (1) shall be submitted along with fee as prescribed in the Second Schedule.

(3) The brokers who are working as broker before coming into force of these rules, shall apply for registration in accordance with the provisions of sub-rule (1), within ninety days of the date of coming into force of these rules. (4) The stock exchange shall forward the application to the Commission within fourteen days from the date of its receipt. 4. Eligibility for registration.-- (1) A person shall be eligible for registration as a broker under these rules, if he (a) is a member of the stock exchange; (b) is not less than twenty-one years of age; (c) is a citizen of Pakistan; (d) has atleast passed graduation or equivalent examination from an institution recognized by the Government: Provided that the Commission may relax the educational qualification in suitable cases on merit having regard to the applicants experience; (e) is not a lunatic or a person of unsound mind; (f) has not been convicted of a offence involving fraud or breach of trust; (g) has not been adjudicated as insolvent or has suspended payment or has compounded with his creditors; (h) has experience of not less than five years in the business of buying, selling or dealing in securities; (i) has not been a partner of a brokerage firm or a director of a brokerage company which has been convicted of an offence concerning brokerage; (j) has not defaulted in payment of dues at a clearing house; (k) has not defaulted in compliance with the provisions of the Ordinance, the Act and the rules and regulations made thereunder; (l) is not in default on settlement of an investor complaint where such complaint has been adjudicated by a stock exchange or a committee of a stock exchange or the Commission; and (m) has complied with the directives of the Commission in respect of business conduct, dealings with clients and financial prudence. (2) The applicant shall remain in compliance with the requirements of sub-rule (1) at all times and inform the Commission immediately when he is non-compliant with any of the terms and conditions.

5. Certificate of registration.-- (1) The Commission, if it is satisfied that the applicant is eligible for registration as a broker, and that it shall be in the interest of the stock market to do so, may grant certificate of registration to the applicant in Form B as set out in the First Schedule. (2) The certificate of registration of a broker shall be valid for one year. (3) The Commission shall send an intimation of registration under sub-rule (1) to the concerned stock exchange or stock exchanges. (4) No application made under sub-rule (1) of rule 3 shall be refused except after giving an applicant a reasonable opportunity of being heard. (5) In case the Commission refused the grant of certificate of registration to an applicant after providing an opportunity of being heard under sub-rule (4), the decision shall be communicated to the applicant as well as the concerned stock exchange, within fourteen days of the last hearing given to the applicant, stating therein the grounds for refusal. (6) An applicant aggrieved by the decision of the Commission under sub-rule (5) may apply, within a period of thirty days from the date of receipt of such intimation, to the Commission for review of its decision. 6. Effect of refusal for registration.-- A person whose application for grant of a certificate of registration as a broker has been refused by the Commission from and on the date of receipt of the decision under sub-rule (5) of rule 5 shall not deal in securities as a broker. 7. Renewal of registration.-- (1) The certificate of registration shall be renewable on payment of fee as prescribed in the Second Schedule. (2) Requirements of these rules as applicable to initial registration shall also apply to renewal of the registration. 8. Suspension of registration.-- Where the Commission is of the opinion that a broker (i) has failed to remain in compliance with any conditions subject to which certificate of registration was granted under these rules; (ii) has otherwise failed to comply with any requirement of the Act or the Ordinance or of any rules or direction made or give thereunder; (iii) has contravened the rules and regulations of the stock exchange; (iv) has failed to follow nay requirement of the code of conduct laid down in the Third Schedule; (v) has failed to comply with the directives of the Commission in respect of business conduct, dealings with clients and financial prudence;

(vi) has failed to furnish any information related to his transactions in securities as may be required by the Commission; (vii) has failed to submit periodical returns as required by the Commission; (viii) has furnished wrong or false information; (ix) has failed to settle an investor complaint where such complaint had been adjudicated by a stock exchange or a committee of a stock exchange or the Commission; (x) has not co-operated in any enquiry or inspection conducted by the Commission; (xi) has indulged in manipulating price rigging or cornering activities in a stock exchange. (xii) his financial position has deteriorated to such an extent that the Commission is of the opinion that his continuance in securities business shall not be in the interest of investors; and (xiii) has been suspended by a stock exchange, the Commission may, if it considers necessary in the public interest so to do, by order in writing;(a) suspend the registration of a broker for such period as may be specified in the order, or (b) impose on a broker a fine not exceeding one hundred thousand rupees: Provided that an appropriate opportunity of being heard shall be provided to the broker to clarify his position with regard to suspension of registration. 9. Cancellation of registration.-- Where the Commission is of the opinion that the clause of suspension of registration under rule 8 continues during the period of such suspension, or a broker whose registration has been suspended(i) is engaged in insider trading; (ii) has been found guilty of fraud, or convicted of a criminal offence; (iii) has his membership cancelled by a stock exchange; or (iv) has not complied with a directive of the Commission, the Commission may, if it considers it necessary for the protection of investors so to do, by order in writing, cancel the registration of the broker: Provided that no such order shall be made except after giving the broker an opportunity of being heard. 10. Automatic cancellation of registration.-- (1) A certificate of registration

granted under these rules shall stand cancelled automatically if a broker to whom such certificate has been granted (a) ceases to be a member of a stock exchange; (b) is declared defaulter by a stock exchange and is not re-admitted to membership within a period of six months from such declaration; (c) surrenders membership of a stock exchange; (d) is declared insolvent by a Court; (e) voluntarily surrenders certificate of registration to the Commissioner; or (f) is wound up by an order passed by a Court. (2) Where a certificate of registration stands cancelled under sub-rule (1), the concerned stock exchange or clearing house shall intimate the Commission immediately about such cancellation of the certificate of registration. 11. Broker, etc., to clear liabilities.-- Notwithstanding the refusal, suspension or cancellation of a certificate of registration under rules 6, 8, 9 or 10, the broker shall be responsible for clearing all his obligations up to the date on which he has been working as such broker. 12. Brokers to abide by code of conduct.-- A broker holding a certificate of registration under these rules shall abide by the code of conduct specified in the Third Schedule. 13. Application for registration of agent.-- (1) A person desirous of acting as an agent shall make an application to the Commission in Form C as set out in First Schedule, for grant of a certificate of registration, through a broker with whom he is to be affiliated and the concerned stock exchange. (2) The application for registration under sub-rule (1) shall be accompanied by an authority letter from a broker with whom he is to be affiliated along with two references including one from his banker. (3) The application shall be submitted along with fee as prescribed in the Second Schedule. (4) The stock exchange on receipt of an application under sub-rule (1) shall verify the information contained therein an shall also certify that the applicant is eligible for registration as per criteria specified in sub-rule (5). (5) The eligibility criteria for registration as an agent shall be as specified in rule 3 of the Members Agents and Traders (Eligibility Standards) Rules, 2001. (6) The Stock exchange shall forward the application form, along with their recommendations, of such applicants who comply with the requirements aforesaid, to the Commission within thirty days from the date of its receipt.

14. Registration.-- (1) The Commission, if it is satisfied that the applicant is eligible for registration as an agent, shall grant a certificate of registration to the applicant in Form D as set out in the First Schedule, subject to such conditions, as it may deem fit (2) The certificate of registration shall be valid for one year. (3) No application made under sub-rule (1) of rule 13 shall be refused except after giving the applicant a reasonable opportunity of being heard. (4) In case the Commission refuses the grant of certificate of registration to an applicant after providing the opportunity of being heard under sub-rule (2), the decision shall be communicated to the applicant as well as the member and the stock exchange concerned within fourteen days of the last hearing given to the applicant, stating therein the grounds for refusal. (5) An applicant aggrieved by the decision of the Commission under sub-rule (4), may apply, within a period of thirty days from the date of receipt of such intimation, to the Commission for review of its decision. 15. Effect of refusal.-- A person whose application for grant of a certificate of registration has been refused by the Commission shall, on and from the date of the communication of refusal under rule 14, cease to carry on any activities as agent. 16. Renewal of registration.-- (1) The certificate of registration of an agent shall be valid for one year and shall be renewable on payment of fee as prescribed in the Second Schedule. (2) Requirement of these rules applicable to an initial registration shall also apply to renewal of the registration. 17. Agent not to deal with clients in his name.-- (1) No agent shall deal with his clients in his own name. All the transactions shall be in the name of his member or broker and shall be settled with broker or member only. Explanation.-- Dealing with clients includes receiving cash or cheque from the client in the agents own name and issuing cash memos, receipts, delivery notes or any other documents in his name. (2) Notwithstanding anything in sub-rule (1), a member or broker shall be liable for the acts and dealings of his agent. 18. General obligations and responsibilities.-- (1) The brokers and the agents shall be responsible to keep and maintain the books of accounts, records and documents as specified in the Securities and Exchange Rules, 1971, and the Stock Exchange Members (Inspection of Books and Record) Rules, 2001. (2) The provisions of rules 8 to 12 shall be applicable to the agents as they apply to the brokers.

THE FIRST SCHEDULE FORM A [See rule 3(1)] APPLICATION FORM FOR REGISTRATION AS BROKER WITH SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN 1. Name of the Stock Exchange of which the applicant is the member (Please furnish the tenure of membership): 2. Name of the member with Code No: 3. Address of the member: 4. Trade name of member: 5. Form of organization: sole proprietorship/partnership/corporate body/financial institution. (Please give names of proprietor/partners/directors) (Copy of the memorandum and articles of association or the partnership deed, as the case may be, is enclosed): 6. Education qualifications of proprietor/partners/directors: 7. Whether the applicant or its sales personnel or approved user has passed any certification program? If so, please specify the detail: 8. The experience of the applicant or directors or partners in trading at the securities market: 9. Date of admission to membership of Stock Exchange: 10. Whether you are a member of more than one Stock Exchange? If so, please give name(s): 11. Net capital of the applicant (Please furnish details along with an auditors certificate in support thereof): 12. Whether the applicant, any director or partner, any time has been convicted of any economic offence? If so, please furnish the details: 13. Whether the applicant, any director or partner, has been declared insolvent or bankrupt, or declared defaulter by any Stock Exchange? If so, please furnish details: 14. Whether the applicant, any director or partner has anytime been subjected to any proceedings or penalty by the Commission under the Securities and Exchange Ordinance, 1969, or the Securities and Exchange Commission of Pakistan Act, 1997, or any of the rules made there under? If so, please furnish the details: 15. Indicate fax, telex and phone number(s):

16. Attach affidavit indicating the position with regard to clauses (a) to (j) of rule 4 of the Brokers and Agents Registration Rules, 2001, with documentary evidence you want to be taken into consideration: 17. Name of your clearing member: 18. Application processing fee deposited: I declare that the information given in this Form is true to the best of my knowledge and belief. I also declare that if any change occurs in the information given in this application and the accompanying documents, I shall report the same to the Commission on the same day on which the change occurs. Date:__________ Signature:__________ Recommendation of the Stock Exchange: This is to certify that ____________is a member of this Stock Exchange and is recommended for registration with the Securities and Exchange Commission of Pakistan. He satisfies the conditions for registration. Signature:__________ Name:_____________ Designation:______________ Date:__________________ FORM B [See rule 5(1)] SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN CERTIFICATE OF REGISTRATION AS BROKER In exercise of the powers conferred by section 5A of the Securities and Exchange Ordinance, 1969 (XVII of 1969), read with the rule 5 of the Brokers and Agents Registration Rules, 2001, the Securities and Exchange Commission of Pakistan, hereby grants a certificate of registration to________________a member of the _________________Stock Exchange(s) as a Broker for carrying on the activities of buying, selling or dealing in securities and carrying on such other activities as are permitted by such Stock Exchange(s) subject to conditions prescribed in the rules aforesaid and such other conditions as may be prescribed from time to time by the Commission. Registration number allotted is as under: This certificate of registration shall be valid till its is suspended or cancelled in accordance with rules. Date:____________ For and on behalf of Securities and Exchange Commission of Pakistan. FORM C [See rule 13(1)]

APPLICATION FORM FOR REGISTRATION AS AN AGENT WITH SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN 1. Name of applicant: 2. Trade name of agent, firm, corporate body: 3. Form of organization -- sole proprietorship, partnership, corporate body. Please give names of proprietor, partners, and directors. Copy of memorandum and articles or partnership deed, as the case may be is enclosed: 4. Educational qualifications of proprietor, partners, directors etc. Name: Status: Qualifications: 5. Educational qualification of applicant: 6. Whether the applicant has passed any certification program? 7. Past experience of applicant: 8. Residential address_______________ 9. Telephone No.___________NIC No.____________ 10. Name of the member-broker and Stock Exchange to which applicant is affiliated: 11. Date of acquiring agentship: 12. Infrastructural arrangements: Number of Employees: Office Address: Phone No. Telex No. Fax No. Residential phone Nos. of proprietor, partners, directors etc: 13. Number of branch offices and their location with phone, telex and fax numbers: I certify that the information given in this application is true to the best of my/our knowledge and belief. Recommendation letter from the stockbroker to whom I/we am/are affiliated and two references, including one from the banker as required are enclosed. Signature___________ Date:______________ Recommendation of the Stock Exchange: This is to certify that__________is an agent affiliated to ______________memberbroker of this Stock Exchange. The applicant is recommended/not recommended for

registration by the Commission. AUTHORIZED SIGNATORY Signature:_____________ Date:________________ ANNEX TO FORM C [See rule 13(2)] RECOMMENDATION LETTER TO BE GIVEN BY THE MEMBER WITH WHOM THE AGENT IS AFFILIATED To The _________ Stock Exchange. Dear, I/We understand that____________son of_______aged____years, residing at_________is attached to me at_________for carrying on the shares and securities business as my agent. I/We confirm that the aforesaid person is transacting business through me from __________, and is a fit and proper person to be registered as an agent. I/We also confirm that the aforesaid person is known to me/us for well over____years and has got good financial background, moral character and integrity, and has been transacting business frequently and was meeting the market commitments as and when they arise. I/we take full responsibly for the actions and dealings of the aforesaid person as agent. I/We hereby recommend the application of the aforesaid person for granting registration for carrying on shares and securities business as agent. I/We also wish to state that whatever the information that has been submitted is true to the best of my/our knowledge and if at a later date if any material information comes to my/our knowledge subsequent to the submission of this application, I/We undertake to keep informed about the same. I/We member(s) of_____________Stock Exchange hereby agree to recommend the aforesaid person. Yours faithfully, Signature of member(s)____________ Date:_______________ FORM D [See rule 14(1)] SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN BROKERS AND AGENTS REGISTRATION RULES, 2001

CERTIFICATE OF REGISTRATION AS AGENT In exercise of the powers conferred by section 5A of the Securities and Exchange Ordinance, 1969 (XVII of 1969), read with the Brokers and Agents Rules, 2001, the Securities and Exchange Commission of Pakistan hereby grants a certificate of registration to ______________as an Agent of ____________who is a member of ______________Stock Exchange subject to the conditions prescribed in the rules aforesaid and such other conditions as may be prescribed from time to time by the Commission. Registration number allotted is as under: This certificate of registration shall be valid till it is suspended or cancelled in accordance with the rules. Date:________ For and on behalf of Securities and Exchange Commission of Pakistan

THE SECOND SCHEDULE [See rule 3(2), 7(1), 13(3) and 16] TABLE OF FEES FOR REGISTRATION/RENEWAL S.No. Type of applicant Fee for first registration Rs. 1. 2. Broker Agent 10,000 4,000 Fee for renewal Rs. 5,000 2,000

THE THIRD SCHEDULE [See rules 8(iv) and 12] CODE OF CONDUCT A. GENERAL: 1. Integrity.- A broker shall maintain high standards of integrity, promptitude and fairness in the conduct of all his business. 2. Exercise of due skill and care.- A broker shall act with due skill, care and diligence in the conduct of all his business. 3. Manipulation.-- A broker shall not indulge in manipulative, fraudulent or deceptive transactions or schemes or spread rumours with a view to distorting market equilibrium or making personal gains. 4. Malpractices.-- A broker shall not create false market either singly or in concert with others or indulge in any act detrimental to the investors interest or which lead to interference with the fair and smooth functioning of the market. A broker shall not involve himself in excessive speculative business in the market beyond reasonable levels not commensurate with his financial soundness. 5. Compliance with statutory requirements.-- A broker shall abide by all the provisions of the Act and the rules, regulations issued by the Commission and the stock exchange from time to time as may be applicable to him. B. DUTY TO THE INVESTOR: 1. Execution of orders.- A broker, in his dealings with the clients and the general investing public, shall faithfully execute the orders for buying and selling of securities at the best available market price and not refuse to deal with a small investor merely on the ground of the volume of business involved. A broker shall promptly inform his client about the execution or non-execution of an order, and make prompt payment in respect of securities sold and arrange for prompt delivery of securities purchased by clients. 2. Issue of contract note.-- (1) A broker shall not refuse to promptly issue to his clients purchase or sale notes for all the transactions entered into by him with is clients. (2) A broker shall not refuse to promptly issue to his clients scrip wise split purchase or sale notes: Provided that (i) an agent shall not split the contract notes client-wise and scripwise originally issued to him by the affiliated broker into different denominations; and (ii) an agent shall not match the purchase and sale orders of his clients and each such order must invariably be routed through a broker of the stock exchange with whom he is affiliated. 3. Breach of trust.-- A broker shall not disclose or discuss with any other person or make improper use of the details of personal investments and other information of a

confidential nature of a client which he comes to know in his business relationship. 4. Business and commission.-- (1) A broker shall not encourage sales or purchases of securities with the sole object of generating brokerage or commission. (2) A broker shall not furnish false or misleading quotations or give any other false or misleading advice or information to a client with a view of inducing him to do business in particular securities and enabling himself to earn brokerage or commission thereby. 5. Business of defaulting clients.-- A broker shall not deal or transact business knowingly, direct or indirectly or execute an order for a client who has failed to carry out his commitments in relation to securities with another broker. 6. Fairness to clients.-- A broker, when dealing with a client, shall disclose whether he is acting as a principal or as an agent and shall ensure at the same time that no conflict of interest arises between him and the client. In the event of a conflict of interest, he shall inform the client accordingly and shall not seek to gain a direct or indirect personal advantage from the situation and shall not consider clients interest inferior to his own. 7. Investment advice.-- A broker shall not make a recommendation to any client who might be expected to rely thereon to acquire, dispose of, retain any securities unless he has reasonable grounds for believing that the recommendation is suitable for such a client upon the basis of the facts, if disclosed by such a client as to his own security holdings, financial situation and objectives of such investment. The broker should seek such information from clients, wherever he feels it is appropriate to do so. 8. Competence of broker.-- A broker should have adequately trained staff and arrangements to render fair, prompt and competent services to his clients. C. BROKER VIS-A-OTHER BROKERS: 1. Conduct of dealings.-- A broker shall co-operate with the other contracting party in comparing unmatched transactions. A broker shall not knowingly and willfully deliver documents which constitute bad delivery and shall co-operate with other contracting party for prompt replacement of documents which are declared as bad delivery. 2. Protection of clients interest.-- A broker shall extend fullest co-operation to other brokers in protecting the interests of his clients regarding their rights to dividends, bonus shares, right shares and any other right related to such securities. 3. Transactions with brokers.-- A broker shall carry out his transactions with other brokers and shall comply with his obligations in completing the settlement of transactions with them. 4. Advertisement and publicity.-- A broker shall not advertise his business publicly unless permitted by the stock exchange. 5. Inducement of clients.-- A broker shall not resort to unfair means of inducing clients from other brokers.

6. False or misleading returns.-- A broker shall not neglect or fail or refuse to submit the required returns and not make any false or misleading statement on any returns required to be submitted to the Board and the stock exchange. D. BROKERS VIS-A-VIS COMMISSION AND STOCK EXCHANGE: 1. General conduct.-- (1) A broker shall not indulge in dishonorable, disgraceful, disorderly or improper conduct on the stock exchange nor shall he willfully obstruct the business of the stock exchange. He shall comply with the rules, bye-laws and regulations of the stock exchange. (2) A broker shall faithfully comply with the general or specific directives issued by the Commission. 2. Failure to give information.-- A broker shall not neglect, fail or refuse to submit to the Commission or the stock exchange with which he is registered, such books, special returns, correspondence, documents and papers or any part thereof as may be required. [No.2(65)/SE/2001] Sd/(ABDUL HALEEM JADRAN) Joint Director

..
The Balloters, Transfer Agents and Underwriters Rules, 2001
.Arrangement Rule 2.
3,

of Rules

Title Short title and commencement Definitions Restriction on acting as balloter, transfer agent or under

writer
4
5.
6,

Conditions for acting as a balloter, transfer agent or d . un erwnt,er Contractual arrangement~ mandatory General obligations Relaxation of rules---,

*This Arrangement of Rules is not part of the Notification or Gazette containing it and has been prepared for ('n~..on;on~e of readers,

THE BALLOT;ERS, TRANSFER AGENTS AND UNDERWRITERS RULES, 2001 SRO 472(1)/2001, dated, June 27, 2001.- In exercise of the powers conferred by sectio!1 33 of the Securities and Exchange Ordinance, 1969 (XVII of 1969), read with cll:j.use(b) of section 43 of the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997), and in pursuance of section 32C of the said Ordinance, the Securities and Exchange Commission of Pakistan, with the approval of the Federal Government hereby makes the following rules, namely:1. Short title and cprnrnencernent.(1) These rules may be called the Balloters, Transfer Agents and Underwriters Rules, 2001. (2) They shall come intq force at once. 2. Definitions.(1) In these rules, repugnant in the subject or context,(a) "Act" means the i Securities and Pakistan Act, 1997 (XLII of 1997); (b) "pompany" meanS a company as Ordinance, 1984 (XLVII of 1984); (c) "Ordinance" means the Securities 1969 (XVII of 196$);*
:

unless there is anything Exchange Commission of defined in the Companies and Exchange Ordinance,

1.-20
R. 2(2)

Balloters,

Transfer

Agents, etc,

(2) All words and expression$ used but not defined in these rules shall have the same meaning $8 in the Secul;ties and Exchange Ordinance, 1969 (XVII of 1969), the, Companies Ordinance, 1984 (XLVII of 1984), or the Securities and Excha~ge Commission of Pakistan Act, 1997 (XLII of 1997). 3. Restriction on acting as balloter, transfer agent or under writer.- No person shall offer his service, or act as a balloter, transfer agent or an underwriter unles$ such person fulfils the eligibility conditions specified in rules 4. 4. Conditions for acting as a balloter, transfer agent or underwriter.No person shall act as a balloter, transfer agent or underwriter unless such person fulfils the following conditions, namely :(i) it is a company; (ii) it employs persons
discharging functions J sseSSing by it; managerial experience for 0 ered

(iii) it has on its pay roll a person who possesses a degree in law recognized by the Pakis an Bar Council, or who is a chartered accountant or a cost and: management accountant; (iv) owns computer hardware and software, and employs persons who are expert in the 0 eration of such hardware and software to discharge the service offered; (v) its directors and empl yees have not been convicted of an offence involving fraud r breach of trust; (vi) its directors and empl yees have not been punished for an offence under the Or inance, the Act any rules made or directive issued thereunder; and (vii) its directors and employees remain in compliance with the conditions aforesaid or !:iny other requirements notified by the Commission generally or in any particular case. 5. Contractual arrange*ents mandatory.(1) A balloter, transfer agent or undenvriter sh~ll not perform services offered by him except pursuant to an agreement ,in writing that shall state in detail the services to be performed by him atld the compensation payable to him for performing the services. (2) The agreement referred to in sub-rule (1) shall contain a provision stating that the arran{Sement for performing the services or discharging the function on behalf of the client and responsibilities which are placed on the client, pursua~t to the Ordinance or the Act or any other law, for the time being "enfo~ce,does not substitute for, or otherwise diminish, the obligation of the cliept to perform such responsibilities.
"should have been "in force'

Balloters, Transfer Agents, etc.

R.7

6. General obligationfi.(1) A person working as balloter, transfer agent or underwriter shall keep. and maintain proper books, records, agreements and docllments to show transactions, dealings, receipt and transmission of documents, applications and correspondence. (2) The records referred tp in sub-rule (1) shall be preserved in good ~ than five years and shall be open to order for a period of not les
inspection by any person appoi ted by the Commission for the purpose.

(3) A bRlloter, transfer gent or underwriter shall be bound to comply with all general or spec al dj~ectives issued by the Commissi~.n' 7. Relaxation of rules.- Where the Commission is satisfied that it is not practicable .~ocomply with any requirement of these rules in a particular case or class of cas~s, the Commission may, for reasons to be recorded in writing, relax such requirement subject to such conditions as it may deem fit.

II.21

PART II Statutory Notifications (S.R.O. 938) GOVERNMENT OF PAKISTAN SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN NOTIFICATION Islamabad, the 12th December, 2002 S.R.O. (I)/2002.- In exercise of the powers conferred by sub-section (2) of section 167 of the Insurance Ordinance, 2000 (XXXIX of 2000), the Securities and Exchange Commission of Pakistan, with the approval of the Board, is pleased to make the following rules, the same having been previously published as required by subsection (2) of the said section, namely: 1. Short title and commencement. - (1) These Rules may be called the Securities and Exchange Commission (Insurance) Rules, 2002. (2) They shall come into force at once.

2. Definitions.- (1) In these rules, unless there is anything repugnant in the subject or context,(a) (b) 2000). Bank means the State bank of Pakistan; and Ordinance means the Insurance Ordinance, 2000 (XXXIX of

(2) The words and expressions used but not defined shall have the meaning assigned to them in the Ordinance. 3. Qualifications of actuaries.-(1) Subject to sub-rule (2), any person signing as actuary under the Ordinance shall be a Fellow of (a) (b) (c) the Pakistan Society of Actuaries; or the Institute of Actuaries in England; or the Society of Actuaries in the United States of America; or

(d) such other body as may be recognized by the Commission for the purposes of this rule, after obtaining views of the Pakistan Society of Actuaries. (2) The person referred to in sub-rule (1) shall have at least thirty-six months post Fellowship experience out of which at least twelve months shall have been in Pakistan within the thirty-six months preceding the date of signing.

4.

Additional sub-classes of insurance business.-

For the purposes of sub-section (5) of section 4 of the Ordinance, insurance business of the nature of a domestic insurance policy or of a private motor property damage policy as defined in section 2 of the Ordinance shall not be considered related and subsidiary to life insurance business. 5. Application for registration as an insurer.-(1) For the purposes of subsection (6) of section 6 of the Ordinance, an application for registration as an insurer shall contain the following information, namely:(a) The name of the insurer;

(b) the address of the principal office and in the case of an insurer incorporated outside Pakistan, the address of the principal office outside Pakistan; (c) the name, address and occupation of the directors of the insurer, and particulars of other directorships held by them; (d) the nature of, and all considerations and other benefits passing under, any agreement between the applicant and any director; (e) the names and addresses of, and particulars of any business carried on by, each person holding an interest of ten per cent or more in the issued share capital of the insurer; (f) a statement of the class or classes of insurance business to be carried on by the insurer; (g) where registration is sought for life insurance, a statement of the statutory funds to be established by the insurer; (h) the name and address of the auditor of the insurer, and a statement by the auditor that he consents to act as auditor of the insurer; (i) where registration is sought for life insurance, the name and address of the appointed actuary of the insurer, and a statement by the appointed actuary that he consents to act as appointed actuary of the insurer; (j) the name and address of the bank or banks which the insurer uses or proposes to use as its principal banker or bankers; (k) the name and address of any investment custodian used or proposed to be used by the insurer; (l) a statement of the authorized share capital and the paid-up share capital of the insurer, certified by the auditor of the insurer;

(m) a statement, dated not more than seven days previous to the date of the application, from the Bank showing the amount deposited pursuant to section 29 of the Ordinance; (n) a statement of the existing, if any, and proposed reinsurance arrangements of the insurer; (o) particulars of any agreement other than a reinsurance agreement which the applicant has with any person or body corporate carrying on insurance business; (p) particulars of the measures proposed by the applicant to ensure compliance with the requirements laid down in section 11 of the Ordinance including particulars of the senior management structure of the applicant, and the qualifications and experience of senior managers and directors; and (q) particulars of the investment policy of the insurer.

(2) For the purposes of section 8 of the Ordinance, an application shall be a document, which may be inspected or copied, to the extent only of the information described in clauses (a) to (m), both inclusive, of sub-rule (1). 6. Documents to be submitted along with application for registration.(1) For the purposes of sub-section (6) of section 6 of the Ordinance, the following documents shall be submitted along with any application for registration, namely:(a) A copy of the Statute, charter, deed of settlement, memorandum of association or other document by which the applicant is constituted; (b) applicant; a copy of the articles of association or rules in respect of the

(c) if applicable, a photocopy of the certificate of incorporation and the certificate of commencement of business of the applicant; (d) in respect of an applicant who was not carrying on insurance business on the 19th August, 2000, a statement of assets and liabilities of the applicant, made up to a date not more than three months previous to the date of the application, in the form as set out in Annexure I for life insurers or non-life insurers, as the case may be, in conformity with the provisions of sub-section (1) of section 46 of the Ordinance; (e) copies of all accounts, statements and reports laid before the shareholders of the applicant at the last five annual general meetings of the shareholders or, if less than five annual general meetings of the shareholders of the applicant have been held, copies of the accounts, statements and reports laid before the annual general meetings of shareholders which have been held;

(f) in respect of life insurance and in respect of such classes of non-life insurance as are prescribed pursuant to sub-section (6) of section 4 of the Ordinance, a certified copy of the published prospectus, if any, and of the standard policy forms of the insurer and statements of the assured rates, advantages, terms and conditions to be offered in connection with insurance policies together with a certificate in connection with life insurance business by the appointed actuary that such rates, advantages, terms and conditions are workable and sound; and (g) a business plan showing projected business to be written and cash flows for a period of not less than ten years from the date of the application in the case of a life insurer and not less than three years from the date of the application in the case of a non-life insurer, showing the forecast financial position of the insurer as at the 31st December, in each calendar year, and the forecast results of the insurer for each year or part of a year ending on the 31st December. (2) Any document required to be submitted which is not in either the English or Urdu language shall be accompanied by a certified translation of that document into the English or Urdu language. (3) For the purposes of section 8 of the Ordinance, the documents specified in clauses (a), (b), (c), (d), (e) and (f) of sub-rule (1) shall be the documents which may be inspected and copied. 7. Renewal of registration.- (1) For the purposes of sections 11 and 12 of the Ordinance, every insurer registered under the Ordinance shall apply for renewal of registration on annual basis. (2) Every application made under sub-rule (1) shall be accompanied by a declaration by the applicant that the conditions imposed on registered insurers as specified in sections 11 and 12 of the Ordinance have been complied with. 8. Transitional provisions.- (1) The provisions of this rule shall apply to conversion from a life insurance fund to a statutory fund or funds under section 25 of the Ordinance. (2) Upon conversion, an insurer shall allocate all policies, which are in force, including policies, which have been made paid-up under the provisions of the repealed Act, to one or more statutory funds in accordance with such criteria as may be determined by the appointed actuary. (3) Upon conversion, an insurer shall create so many as are required of the ledger accounts specified in sub-sections (1) and (2) of section 22 of the Ordinance. (4) As at the date of conversion the opening balance in A, B, C and D accounts shall be determined by the appointed actuary on a fair and equitable basis having regard to the provisions of the Ordinance. (5) The amount initially recorded as capital contributed by shareholders shall be the cumulative amount as at the date of conversion of capital, if any, contributed by

shareholders in respect of the business carried on in the statutory fund created by conversion, after the deduction of any such capital as at that date which has been allocated for the benefit of participating policy holders. (6) The amount initially recorded as reserves shall be the amount as at the date of conversion of any reserves required to be maintained under the Ordinance. (7) Immediately following the recording of the amounts referred to in sub-rules (4), (5) and (6), the insurer may effect a transfer from the B account to the credit of the C account of not more than such amount which would result in the B account having a credit balance of one-ninth of the A account: Provided that in the case of the State Life Insurance Corporation the words oneninth in this sub-rule shall be read as "one-thirty-ninth". 9. Minimum statutory deposit levels.- (1) Subject to sub-rules (2) and (3), for the purposes of clause (b) of sub-section (2) of section 29 of the Ordinance, the prescribed amount shall be five million rupees. (2) For an insurance company which has, for two years immediately preceding the end of any calendar year, maintained not less than the minimum level of paid up capital applicable to that company under section 28 of the Ordinance and not less than the minimum level of solvency applicable to that company under section 35 or 36 of the Ordinance, in both cases without applying the proviso to section 28 of the Ordinance, the prescribed amount in respect of that company under sub-rule (1) shall be zero. (3) Subject to sub-rule (2), with immediate effect the amount of statutory deposit shall be one million rupees and from then for the period until the 31st December, 2002, two and half million rupees, until the 31st December, 2003, three and half million rupees and until the 31st December, 2004, and thereafter five million rupees. 10. Admissibility of assets.- (1) For the purposes of sub-section (2) of section 32 of the Ordinance, the prescribed percentages for an insurance company which was registered as at the commencement date of the Ordinance, the amount prescribed in the repealed Act shall be applicable until the 31st December, 2002, and thereafter for such companies, and for a company registered after the commencement date, the percentages specified in column (3) of the table below shall apply for the clauses of the said sub-section specified in column (1) of that table in respect of the assets described in column (2) thereof.

Clause (1)
(b)

Description of Assets (2)

In a statutory fund of a life insurer, any assets Loans which are secured against immovable property: (i) approved securities and approved investments; and (ii) other loans secured against

Percentage (3)
Five per cent for life insurer.

(f)

Fifty per cent for both life and non-life insurer. Five per cent for both life and

immoveable properties (n) Any one unit of immovable property. Total immovable property. Shares in any one company or in group of related companies Shares of the listed companies in the aggregate. Shares of companies (not being listed companies) in the aggregate. Immovable property and shares in the aggregate. Loans to any person or group of related persons

(o)

(p)

(q)

(r)

(s) (t)

non-life insurer. Fifty per cent in the case of nonlife insurer and five percent in case of life insurer. Sixty per cent in the case of nonlife insurer and twenty per cent in case of life insurer. Twenty-five per cent in the case of non-life insurer and five per cent in case of life insurer. Seventy per cent in the case of non-life insurer and fifty per cent in case of life insurer. Ten per cent in the case of nonlife insurer and two and half per cent in case of life insurer. Eighty per cent in the case of non-life insurer and sixty per cent in case of life insurer. Two and half per cent for both life and non-life insurers.

(2) Where regulations issued under this rule, or any amendment to such regulations, reduces the amount or proportion of assets which may be held in a particular form by insurers, those regulations or that amendment shall not come into effect until one year from the date at which the change to regulations is published, unless the Commission is satisfied on reasonable grounds that earlier application is warranted for the protection of policyholders or to deal with an actual or apprehended breach of the Ordinance or the rules made thereunder. 11. Valuation.- For the purposes of sub-section (3) of section 34 of the Ordinance, where an amount referred to in sub-section (1) of that section cannot be reliably determined by reason of the absence of relevant information on which to base a determination, an insurer may perform a valuation based on the present value of the expected future cash flows pertaining to an asset or a liability, as the case may be, and in determining the present value a discount rate appropriate to the timing of the future cash flows shall be used. 12. Minimum required assets in statutory fund.- For the purposes of subsections (3), (4) and (5) of section 35 of the Ordinance, policyholder liabilities shall be determined by the Commission, by notification in the official Gazette: Provided that where sub-section (6) of section 50 applies in respect of a statutory fund, policyholder liabilities for the purposes of the said sub-sections shall not be less than the amount determined by the appointed actuary under that subsection. 13. Solvency of non-life insurer.- (1) For the purposes of clause (a) of subsection (3) of section 36 of the Ordinance, the following shall be the prescribed amount, namely:(a) In the case of an insurance company registered after the commencement date, fifty million rupees; and

(b) in the case of an insurance company registered at the commencement date(i) the amount applicable under the repealed Act, until the 31st December, 2002; (ii) (iii) and fifteen million rupees until the 31st December, 2003; twenty-five million rupees until the 31st December, 2004;

(iv) fifty million rupees until the 31st thereafter.

December, 2005, and

(2) For the purposes of clause (b) of sub-section (3) of section 36 of the Ordinance, the following shall be the prescribed percentage, namely:(a) In the case of an insurance company registered after the commencement date, twenty per cent; and (b) in the case of an insurance company registered at the commencement date(i) (ii) (iii) rule. ten per cent until the 31st December, 2002; fifteen per cent until the 31st December, 2004; and thereafter the percentage as set out in clause (a) of this sub-

(3) For the purposes of clause (c) of sub-section (3) of section 36 of the Ordinance, the following shall be the prescribed percentage, namely:(a) In the case of an insurance company registered after the commencement date, twenty per cent; and (b) in the case of an insurance company registered at the commencement date(i) (ii) ten per cent until the 31st December, 2002; fifteen per cent until the 31st December, 2004; and

(iii) thereafter the percentage as set out in clause (a) of this sub-rule. 14. Loans to employees and agents.- (1) For the purposes of sub-section (8) of section 37 of the Ordinance, an insurer may, at its discretion, grant to an employee or an agent of the insurer a loan or temporary advance, not otherwise prohibited or provided for by the Ordinance, as follows, namely:-

(a) A life insurer may grant a loan on a life insurance policy issued by that insurer to an employee or an agent of that insurer, of not more than the surrender value of that policy; (b) an insurer may grant to an employee or an agent of that insurer a loan on mortgage of immovable property, provided that(i) the amount of the loan does not at any time exceed fifty per cent of the value of the property or, if the purpose of the loan is to construct a house, fifty per cent of the sum of the value of the land and the amount paid or contracted to be paid to date for such construction; (ii) the loan is repayable within a period of not more than fifteen years; and (iii) the amount payable by the employee or an agent in repayment of such loan in any one year, including principal and profit or return (whatever called or described) does not exceed (in the case of an employee) one third of the total remuneration of the employee from the insurer during the most recent year or (in the case of an agent) one-fourth of the total renewal commission payable to the agent by the insurer in respect of the most recent year; (c) an insurer may grant to an employee or an agent of that insurer a loan for the purchase of a conveyance, provided that(i) the employee or an agent has served the insurer continuously for a period of not less than three years, in case of an employee, and five years, in case of an agent, as at the date at which the loan is granted; (ii) (iii) the conveyance purchased is mortgaged to the insurer; the loan is repayable within five years; and

(iv) the total amount of the loan (in case of an employee) does not exceed the total remuneration of the most recent year of the employee and (in case of an agent) total renewal commission payable to the agent by the insurer in respect of the most recent year; (d) an insurer may grant to an employee of that insurer a temporary loan or advance to meet fees and expenses associated with the completion of a course of study by that employee, provided that(i) the employee has served the insurer continuously for a period of not less than two years; and (ii) the course of study is offered by-

(a) a college or university or institution in Pakistan or a college or university or institution outside Pakistan which offers distance learning program to students resident in Pakistan, provided in each case, the college or university or institute is recognized by the University Grants Commission or by any other authority constituted by the Federal Government for this purpose; or (b) the Pakistan Insurance Institute (PII) or an insurance institute affiliated to that Institute; or (c) the Chartered Insurance Institute in the United Kingdom (CII); or (d) an insurance industry association approved for the purposes of this clause by the Commission; or (e) all courses offered by the Institute of Actuaries, United Kingdom; or (f) or the Institute of Chartered Accountants of Pakistan (ICAP);

(g) the Institute of Cost and Management Accountants of Pakistan (ICMAP); or (h) the Institute of Chartered Accountants England and Wales (ICEAW); or (i) the Institute of Chartered Management Accountants (CIMA), United Kingdom; or (j) the Association (ACCA); or (k) (l) of Chartered Certified Accountants

the Institute of Certified Public Account (CPA), USA; or the Institute of Internal Auditors (IIA), USA; or

(m) the Institute of Chartered Financial Analyst (CFA), USA; or (n) all courses offered by the Institute of Life Office Management Association (LOMA) including the Chartered Life Underwriters (CLU), USA; or (o) or all courses offered by the Society of Actuaries (SoA), USA;

(p) such other body as may be specified by the Commission, by notification in the official Gazette;

(iii) the loan is repayable within five years of the date of grant of loan; and (iv) the amount of the loan does not exceed one half of the total remuneration of the employee from the insurer during the most recent year; (e) an insurer may grant to an employee of that insurer a temporary loan or advance, provided that(i) the loan is repayable within twelve months; and

(ii) the amount of the loan does not exceed one-sixth of the total remuneration of the employee from the insurer during the most recent year; and (f) an insurer may grant an employee of that insurer house rent advance not exceeding six months basic pay of the employee, provided that(i) the amount of advance is payable within twelve months from the date of grant of such advance; and (ii) the employee has served the insurer continuously for a period not less then two years. (2) A reference in this rule to the amount of a loan or advance or the amount payable in a year includes principal and profit or return, whatever called or designated, and refers to the nominal amount of the loan or advance and not to any lower amount which may be ascribed to that loan for the purposes of section 34 or 46 of the Ordinance. (3) Loans shall be granted in such a way that the total amount of repayment under all loans under this rule shall not exceed fifty per cent of total remuneration of the employee or fifty per cent of the average monthly renewal commission of the agent for the most recent year. (4) case. (5) thatRecovery of a loan from the employee or agent shall not be deferred in any

The fact that a loan or advance is permitted under this rule does not imply

(a)

an insurer is obliged to grant such a loan or advance;

(b) the granting of such a loan or advance relieves an insurer from any liability or obligation in respect of that loan or advance or in respect of its business generally to which it is subject by reason of the Ordinance; or (c) such a loan or advance is an admissible asset of the insurer for the purposes of determination of the net admissible assets of the insurer for solvency purposes.

15. Requirement to effect and maintain reinsurance arrangements.- (1) For the purposes of sub-sections (2) and (3) of section 41 of the Ordinance, the following information shall be submitted in respect of each reinsurance arrangement by the 31st January of each year, namely:(a) (b) (c) (d) (e) (f) (g) (h) (i) Type of reinsurance treaty; number of lines or slabs, as the case may be; insurers maximum retention; maximum liabilities under total reinsurance treaty; estimated premium income; aggregate commission loss limit, if any; commission ; profit commission; over riding commission;

(j) name and addresses of re-insurers with their respective shares and their rating by reputable international rating agencies; (k) (l) maximum liabilities of each reinsurer; and name and addresses of broker who placed reinsurance.

(2) If the insurers retention is based on maximum probable loss the maximum liabilities of each reinsurer must be stated, including maximum liability under the total reinsurance treaty and a separate statement for each class or sub-class of business shall be furnished. 16. Accounting and reporting.- For the purposes of sub-sections (1) and (2) of section 46 of the Ordinance, the statements as set out in Annexure II shall be furnished.

17. Additional copies. - (1) For the purposes of sub-sections (1) and (2) of section 47 of the Ordinance, the number of additional copies required to be delivered shall be one, which shall be delivered in printed form to the Insurance Division of the Commission. (2) For the purposes of sub-section (4) of section 47 of the Ordinance, one translation either into the English or Urdu language shall accompany each copy in the original language required to be delivered, and that translation shall be duly attested.

18. Fees for special audit.- (1) The fees payable under sub-section (4) of section 49 of the Ordinance to an auditor for a special audit shall be such as may be determined by the Commission on case-to-case basis. (2) The Commission shall in determining such fees have regard to, without limitation(a) insurer; (b) the size of an insurer and the complexity of the business of the

the quality of the books and records of the insurer;

(c) the nature of the considerations which led the Commission to direct that the special audit be performed and the impact of such considerations on the risk of material error in the companys records and returns and the difficulty of performance of the special audit; (d) the seniority and experience of the persons involved in the special audit; (e) the amount of time necessarily expended on the special audit;

(f) the amount of money disbursed as expenses in the conduct of the special audit; and (g) the fees ordinarily charged for specialist auditing services.

19. Financial condition report.- For the purposes of section 50 of the Ordinance, the following shall, without limitation, be included in a Financial Condition Report prepared by an actuary in respect of a life insurer, namely:(a) performed; The date as at which the valuation of policyholder liabilities was

(b) the statement required under sub-section (3) of section 50 of the Ordinance; (c) a statement of any reservations or qualifications to which the report is subject, including any material matters in which the appointed actuary has been unable to comply with any relevant professional standards to which the appointed actuary is subject by virtue of his membership of an actuarial institute, faculty, society or association; (d) a brief description of(i) the business underwritten by the life insurer, and the statutory funds in which it is written; (ii) the reinsurance arrangements of the life insurer;

(iii) (iv) (v) and

the assets of the life insurer; the investment policy of the life insurer; the unit pricing policy of the life insurer (where applicable);

(vi) such other matters relating to the business of the life insurer as the appointed actuary believes should be brought to the attention of the life insurer; (e) a statement of the appointed actuarys opinion on the adequacy of premium rates and charges in respect of policies underwritten by the insurer; (f) a statement of the appointed actuarys valuation of policyholder liabilities according to the minimum valuation basis prescribed under subsection (5) of section 50 including details of(i) the general principles adopted in the valuation of each class of business and group of policies in force at the valuation date; (ii) (iii) the reasons for adoption of those general principles; the methods adopted in the valuation;

(iv) policies which under the valuation methods would be treated as an asset, and actions taken to identify and eliminate such assets from the valuation; (v) bases adopted for mortality and morbidity; and

(vi) currency exchange rates adopted in the translation of liabilities denominated in foreign currency; (g) where sub-section (6) of section 50 applies, a statement of the appointed actuarys valuation of policyholder liabilities under that sub-section;

(h) a statement of the appointed actuarys determination of the surplus, surplus arising on participating life insurance business, if any, surplus adjustment, if any, and expense adjustment, if any; and (i) a statement by the appointed actuary, expressing an opinion as to whether(i) the basis of apportionment of revenues and expenses between the statutory and other funds of the life insurer, and between classes of policy holder within statutory funds, is fair and equitable;

(ii) the surplus attributed to participating policyholders has been determined in accordance with the Ordinance; (iii) in relation to each statutory fund of the insurer, the insurer has complied, on the valuation date, with the provisions of so many as are applicable of sub-sections (3), (4) and (5) of section 35 of the Ordinance, relying on the audited statements of admissible assets; and (iv) the life insurer has adequate capital to continue its business at planned levels for a period of not less than five years. 20. Minimum valuation basis.- (1) For the purposes of sub-section (5) of section 50 of the Ordinance, the minimum valuation basis shall be such as is determined by the Commission, by notification in the official Gazette. (2) Until the issue of a notification under sub-rule (1), the minimum valuation basis shall be that applicable under the repealed Act immediately before the commencement date of the Ordinance. 21. Financial Statements of Life Insurance Companies. (1) For the purposes of section 52 of the Ordinance, the statements required to be filed by life insurers under the Companies Ordinance,1984 (XLVII of 1984), shall be as set out in Annexure II. (2) The Commission may, by notification in the official Gazette, not inconsistent with these rules, provide for accounting and presentation procedures for preparing financial statements under this rule, and the basis of calculation of any amount or ratio required under this rule to be included in any statement forming a part of those financial statements. 22. Amalgamation and transfer of life insurance business.- The statement of assets and liabilities required under clause (b) of sub-section (3) of section 68 of the Ordinance shall be made as set out in Annexure I. 23. Compliance visiting.- (1) This rule refers to the powers given to the Commission to conduct compliance visits under section 84 and 110 of the Ordinance. (2) A compliance visit by the Commission or a delegate of the Commission to the premises of an insurer, an agent, or a broker (party visited) shall not constitute an investigation or an audit under the Ordinance. (3) The Commission shall give not less than two weeks written notice of an intention to perform a compliance visit, and shall have regard to the convenience of the party proposed to be visited in setting the date, time, place and duration of the visit: Provided that if the Commission believes on reasonable grounds that waiver of notice is necessary to prevent breach of the Ordinance, or to prevent concealment of evidence of actual or apprehended breach of the Ordinance, the period of notice

may, with the consent of the Chairman of the Commission, be reduced to twentyfour hours. (4) The notice of a visit shall set out the provision or provisions of the Ordinance, rules or regulations in respect of which it is proposed to verify compliance. (5) A visit under this rule shall not be carried out in such a way as to disrupt unduly the operations of the party visited. (6) A party visited shall not be visited again under this rule until the elapse of not less than six months from the termination of the previous visit, except to the extent that the Commission believes on reasonable grounds that a subsequent visit is necessary to satisfy it that appropriate action is being taken to remedy a defect noted on a compliance visit. (7) A party visited shall co-operate fully with the Commission in the conduct of compliance visit, and shall make available such books and records, information and explanations as the Commission may reasonably require. (8) The Commission shall give to a party visited, within one month following the completion of compliance visit, a written report on the results of the compliance visit. (9) The party visited shall, if the Commission so requires, respond to the written report referred to in sub-rule (8) within one month following receipt by the visited party of the report. (10) The Commission may have regard to the results of a compliance visit in deciding whether to take any action in respect of a party visited under powers given to the Commission or to the Federal Government under the Ordinance, rules or regulations; provided that no such action shall be taken without giving the party visited an opportunity to be heard. 24. Independent insurance survey to be conducted.- (1) Subject to sub-rule (2), for the purposes of sub-section (1) of section 85 of the Ordinance, the Commission, may direct the insurer to arrange for an independent or another survey of the loss through another surveyor or surveyors approved by the Commission, if in case the Commission has reason to believe that an insurance surveyor has given a false report or has grossly over-assessed or under-assessed a loss or has made an adjustment of loss in a grossly unjust manner. (2) Independent survey shall be conducted in respect of the claim lodged for the amount exceeding fifty thousand rupees except in case of motor and casualty insurance where the amount of loss or claim is for more than twenty-five thousand rupees. 25. Conduct of agents and insurer.- (1) For the purpose of sections 96 to 99 of the Ordinance, the following actions of an agent shall be treated as violations of the Ordinance, and the agent shall be disqualified from engaging into the business of insurance agency for a period of five years, namely:-

(a) 96;

Acts as agent in breach of any of the sub-sections of section

(b) holds the property or other documents and cover notes of the previous insurer after entering into the contract of agency with the new insurer; (c) fails to pass on the payment received from the policyholder to the insurer within the prescribed time as per sub-section (2) of section 99; and (d) receives from or pays to a policyholder or intending policyholder any sum in relation to the contract of insurance without prior approval of the insurer in violation of sub-section (3) of section 99. (2) For the purposes of sections 96 to 99, the following actions of an insurer shall be treated as violations of the Ordinance, and the insurer shall be liable to penalty as per section 156 of the Ordinance, namely:(a) Appoints a person as an agent in breach of any of the subsections of section 96; (b) fails to take action as provided in sub-rule (3) on the written complaint of the policyholder or intending policyholder within a period of one month; (c) knowingly permits a disqualified agent to obtain and operate another contract of insurance agency in the name of another person or close relative who is not an active insurance agent; (d) pays commission or other remuneration to an agent in violation of sub-section (5) of section 99; and (e) rule (1). fails to disqualify an agent found guilty of offence under sub-

(3) On receipt of a written complaint from the policyholder or intending policyholder that an agent or any other person related to the agent has received money in relation to a contract of insurance from the complainant and the agent has failed to deposit this money with the insurer, the insurer shall conduct an inquiry into it and inform the policyholder or intending policyholder, as the case may be, about the outcome of the inquiry within one month period of the complaint. 26. Qualifications required of insurance agents.- For the purposes of section 97 of the Ordinance, the following shall be the prescribed qualifications, namely:(a) For persons holding licence of insurance agent or certificate of employer of agents under the repealed Act, there shall be no prescribed qualifications; and

(b) for persons entering into agency contracts after commencement of the Ordinance, the minimum qualification shall be Matriculate or Secondary School Certificate, and in the case of a natural person, that person, or in the case of a body corporate, each director, or in the case of a partnership, each partner, shall have the said qualification, and (i) agents operating in the non-life insurance business shall be required to complete the foundation course of the Pakistan Insurance Institute, with in a period of three years; and (ii) agents operating in the life insurance business shall be required to complete a foundation course of three months durations, to be organized by the concerned insurance company. 27. Reporting by insurance brokers.- (1) Each year an insurance broker shall be required to provide to the Commission, as at the preceding 31st December, or in respect of the year then ended (a) (b) a balance sheet of the company; a profit and loss account of the company;

(c) a statement of the insurance premium written through the broker, distinguishing between premium in respect of which the broker had an agency agreement with the insurer, subdivided by classes of insurance business, and premium in respect of which the broker did not have an agency agreement with the insurer; subdivided by classes of insurance business; and (d) a statement of the commission or brokerage, by whatever name called, receivable by the broker, subdivided by classes of insurance business, distinguishing between commission earned on premium in respect of which the broker had an agency agreement with the insurer, and commission earned on premium in respect of which the broker did not have an agency agreement with the insurer. (2) The Commission may, on the application of a broker, approve a date other than the 31st December, for the date as at which the statements shall be required to be made up for the purposes of sub-rule (1). (3) The statements referred to in this rule shall be provided to the Commission not later than four months after the date to which they are made up. 28. Misrepresentation by life insurers.- (1) Subject to sub-rule (2), no life insurer shall (a) make, issue, circulate or cause to be made, issued or circulated, any estimate, illustration, circular or statement misrepresenting the terms of any policy issued or to be issued or the benefits or advantages promised thereby or the bonuses, shareholders dividends or share of the surplus to be received thereon, or make any false or misleading statement as to the bonuses, shareholders dividends or share of surplus previously paid on similar policies

or make any misleading representation or any misrepresentation as to the financial condition of any policyholder insured in any company for the purpose of inducing or tending to induce such policyholder to enter into, allow to lapse, forfeit or surrender his insurance policy; or (b) make, publish, disseminate, circulate or place before the public, or cause, directly or indirectly, to be made, published, disseminated, circulated or placed before the public in a newspaper, magazine or other publication, or in the form of a notice, circular, pamphlet, letter or poster or in the electronic media or in any other manner an advertisement, announcement or statement with respect to the business of insurance, or the financial position of any insurer or with respect to any person in the conduct of his insurance business, which is false, untrue, deceptive, misleading or calculated to injure any person engaged in the business of insurance. (2) Nothing contained in sub-rule (1) shall prevent an insurer from publishing any return in a form in which it has been furnished to the Commission or a true and accurate abstract from such returns. 29. Power of the Commission to provide for matters in respect of promotional material and policy documentation.- (1) The Commission may, by notification in the official Gazette, not inconsistent with the provisions of the Ordinance, provide for matters in relation to any promotional material or policy documentation issued by a life insurer, including but not limited to the form and content of that material or documentation and the form and content of any notices which that material or documentation shall contain. (2) A notification issued under sub-rule (1) shall have regard to the information needs of policyholders and their capability of understanding information provided to them. (3) For the purposes of this rule,(a) promotional material means any document or advertisement that contains statements that may affect a persons decision to enter into, vary or continue a life policy, or a particular type of life policy; and (b) policy documentation includes contracts, endorsements and proposal documentation. 30. Power to require withdrawal of materials used for communication.The Commission may require any person carrying on such activities in Pakistan to withdraw any written, electronic or other material issued by it for mass communication or communication with a policyholder or prospective policyholder including a policy or proposal document (a) if it includes any matter which is, in the opinion of the Commission, likely to mislead a policyholder or a prospective policyholder; or (b) if it is, in the opinion of the Commission, misleading by omission, ambiguous or couched in obscure language.

31. Liability for insurance advice.- Where insurance advice is given in writing to a person by an insurer, an agent of an insurer or an insurance broker, that advice shall have regard to the circumstances of the person, and where that advice is not reasonable having regard to those circumstances, and where it is reasonable for the person receiving the advice to rely upon it, the person receiving the advice shall be entitled to recover (in the case of an insurer or an agent of an insurer), from the insurer or broker, as the case may be, any loss or damage directly suffered by him as a result of following or acting upon the advice in good faith. The burden of proving that due regard was given to the circumstances of the policyholder and that the advice was reasonable under the circumstances shall rest with the insurer or broker. 32. Policyholders duty of disclosure.- (1) A proposal form provided to a prospective policyholder shall carry or contain a notice of his duty of disclosure stating the consequences of non-disclosure. (2) If an insurer fails to comply with the provisions of sub-rule (1), the insurer shall not be able to rely upon non-disclosure by the policyholder (other than fraudulent non-disclosure) as grounds for refusing to pay a claim or for diminishing a claim which is otherwise payable. 33. Duty of life insurer to provide certain information.- (1) A life insurer shall provide to an intending policyholder under a policy the terms of which or the provisions of the Ordinance provide for it to acquire a surrender value, at or before the commencement of the policy, a clear statement of the expected surrender values on the policy at one year from the commencement of the policy and at subsequent dates at an interval of one year, for a period of not less than ten years or if earlier until maturity, and the assumptions on which those expected surrender values are based. (2) A life insurer shall provide to the intending policyholder a clear statement of the options available to the policyholder should the policy holder not maintain premium payments: Provided that this statement shall not be required in respect of a life insurance policy under the terms of which the premium is payable once only. (3) The Commission may, by notification in the official Gazette, not inconsistent with the provisions of the Ordinance, provide for any matters relating to the form and content of the notices provided to an intending policyholder under this rule, including but not limited to (a) the assumed investment earnings rates and in the case of participating policies bonus crediting rates on the basis of which surrender values included in such notices are calculated; (b) the assumed expense rates on the basis of which surrender values included in such notices are calculated; and (c) the inclusion in such notices of words in a form as required by such notification.

34. Unit valuations.- (1) Subject to sub-rule (2), a life insurer offering investment-linked policies shall publish, in a newspaper having general circulation, not more than ten days following the last day of each month, the values attributed by it to units for the purpose of redemption of units by policyholders at close of business on the last working day of that month. (2) Where a life insurer offering investment-linked policies publishes the values attributed by it to units for the purpose of redemption of units by policyholders more frequently than is required by sub-rule (1), that insurer shall not be required to publish the information as at close of business on the last working day of a month provided that (a) information referred to in sub-rule (1), made up as at close of business on a date not more than five days prior to the last working day of that month or not more than five days after the last working day of that month, is published in a newspaper having general circulation; and (b) the information is published not more than ten days following the date as at which it is made up. 35. Insurance policy not to be avoided for non-payment of premium.(1) No insurance policy shall be liable to be avoided on the ground that the premium has not been paid. (2) Nothing in this rule shall prevent the inclusion in a policy of a provision to the effect that cover under the policy shall not commence until the premium has been paid or guaranteed to be paid in such manner as may be set out in the policy or otherwise accepted or agreed to by the insurer. 36. Endorsements.- No endorsement to a policy, which has retrospective effect, may be made without the express consent in writing of the policyholder. 37. Effect of averaging provision in domestic insurance policy.-(1) Subject to sub-rule (2), the operation of an averaging provision in a domestic insurance policy shall be limited to cases in which the amount of the sum insured is less than eighty per cent of the value of the property insured at the time of taking out the policy, and to cases in which the amount of the loss is greater than five per cent of the sum insured. The value of the loss to be paid shall be determined according to a sliding scale such that one hundred per cent of the loss is payable when the sum insured is eighty per cent of the value of the property, and the amount of the loss payable is reduced by one and a quarter per cent for each percentage point below eighty per cent that the sum insured bears to the value of the property insured at the time of taking out the policy. (2) Nothing contained in sub-rule (1), shall prevent an insurer from inserting an averaging clause, which is more favourable to the policyholder. 38. Insurers duties when claim denied.- (1) An insurer shall, whenever a claim is denied, provide the policyholder with a written statement of reasons for denial of the claim.

(2) Where refusal to pay a claim, in whole or in part, is based, in whole or in part, upon a survey report, the policyholder shall be provided, at his option, with a copy of the survey report. 39. Free look period for life insurance.- (1) A life insurance policy, not being a group life insurance policy, and the term of which is for more than one year, shall be liable to be cancelled at the option of the policyholder within fourteen days of commencement, and if the policyholder cancels the policy within that time all amounts paid by way of premium shall be refunded without any deduction for management expenses, other than expenses incurred in connection with the medical examination of any person insured under the policy. (2) No person shall offer any inducement to a person for the purposes of procuring that person to cancel his policy in accordance with this rule.

(MOHAMMAD HAYAT JASRA) Executive Director

No. F.7(1)T/(I)/2000]

Annexure 1 Annexure 1 (Life forms) Annexure 1 (Non Life forms) Annexure 2 Annexure 2 (Accounting Regulations) Annexure 2 (Life Accounting Forms) Annexure 2 (Auditors Report Life) Annexure 2 (Non Life Accounting Forms) Annexure 2 (Auditors Report Non Life)

Annexure I [See rules 6(1)(d) and 22] Form for statement of assets and liabilities (Life) Company Name: Financial Year ended 31 December ........... Balance Sheet FORM LA

Figures in Rs 000 Shareholders Statutory Fund Aggregate Fund Ordinary life Ordinary life Capital Pension fund Accident & current (investment redemption health year linked) Aggregate prior year

Cash and Bank Deposits Cash and others Current and other accounts Deposits maturing within 12 months Fixed Deposits maturing after 12 months

Loans Secured Against Life Insurance Policies Loans Secured Against other assets To employees or agents Others

Unsecured Loans To employees or agents Others

Investment Property Investments Government Securities Other Fixed Income Securities Listed Equities Unlisted Equities Others (Please specify)

Deferred Taxation Preliminary and Deferred Expenses Current Assets - Others Premiums due but unpaid Amounts due from other insurers/ reinsurers Taxation - payments less provision Prepayments Sundry receivables Others (Please specify)

Fixed Assets Tangible & Intangible Land and Builldings Capital Work in Progress Furniture, Fixtures, Office Equipment and Vehicles Intangibles (Please specify) Others (Please specify)

TOTAL ASSETS

The annexed notes form an integral part of these accounts.

Chairman

Director

Director

Annexure I [See rules 6(1)(d) and 22] Form for statement of assets and liabilities (Life) Company Name: Financial Year ended 31 December ........... Balance Sheet FORM LA

Figures in Rs 000 Shareholders Statutory Fund Aggregate Fund Ordinary life Ordinary life Capital Pension fund Accident & current (investment redemption health year linked) Aggregate prior year

Share Capital and Reserves Authorised Share Capital Issued, subscribed and paid up Share Capital Accumulated Surplus/(Deficit) Other Reserves (describe) Less: Capital contributed by shareholders fund Net Shareholders' Equity

Balance of statutory fund (including policyholder liabilities Rs. Prior year: Rs. ) Deferred Liabilities Deferred Taxation Staff Retirement Benefits Others

Creditors and Accruals Outstanding claims (including IBNR) Premiums Received in Advance Amounts due to other insurers/reinsurers Accrued Expenses Taxation - Provision less payments Other Creditors and Accruals (Please specify)

Borrowings Short term running finance Loans received from banks Other loans Other debt security issued Other liabilities Other liabilities (please specify) TOTAL LIABILITIES

TOTAL EQUITY AND LIABILITIES CONTINGENCIES AND COMMITMENTS (if applicable)

The annexed notes form an integral part of these accounts.

Chairman

Director

Director

Annexure I [See rule 6(1)(d)] Form for statement of assets and liabilities (Non-life) FORM GA Company Name: Financial Year ended 31 December ........... Balance Sheet Figures in Rs 000 Note Current Year Rs Prior Year Rs Cash and Bank Deposits Cash and other equivalent Current and other accounts Deposits maturing within 12 months Deposits maturing after 12 months Note Current Year Rs Prior Year Rs

Share Capital and Reserves Domestic companies Authorised Share Capital Paid-up share capital Retained earnings Reserves Other equity (please specify) Foreign companies Head office account Other domestic equity (please specify)

Loans (Secured or un-secured - classify as appropriate) To employees or agents Others

Investments Underwriting provisions Provision for outstanding claims (including IBNR) Provision for unearned premium Additional provision for unexpired risks Commission income unearned Total underwriting provisions Deferred Liabilities Deferred Taxation Staff Retirement Benefits Others (please specify) Current Assets - Others Premiums due but unpaid Amounts due from other insurers/ reinsurers Reinsurance recoveries due but unpaid Salvage recoveries accrued Premium and claim reserves retained by cedants Accrued investment income Reinsurance recoveries against outstanding claims Taxation - payments less provision Deferred commission expense Other deferred acquisition costs Prepayments Sundry receivables(provide details) Fixed Assets Tangible & Intangible Land and Builldings Furniture, Fixtures and Office Equipment Motor Vehicles Capital Work in Progress Intangibles (Please specify)

Investment Property Deferred Taxation Preliminary and Deferred Expenses

Creditors and Accruals Premiums Received in Advance Amounts due to other insurers/reinsurers Accrued Expenses Taxation - Provision less payments Other Creditors and Accruals (describe) Borrowings Short term running finance Loans received from banks Other loans Other debt security issued Other liabilities Other liabilities (please specify) TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES CONTINGENCIES AND COMMITMENTS (if applicable) The annexed notes form an integral part of these accounts.

TOTAL ASSETS

Chairman (If any)

Director

Director

Principal Officer

Annexure II [See rules 16 and 21(1)] Statements required to be filed by life and non-life insurers
While preparing statements an insurer carrying on life insurance business shall comply with the requirements of Part A and an insurer carrying on non-life insurance business shall comply with the requirements of Part B.

Part A. 1.
(1) (2) (3) (4) (5) (6)

Accounting Regulations for Life Insurance

Definitions and interpretations

The Ordinance means the Insurance Ordinance 2000. The Commission means the Securities and Exchange Commission of Pakistan. Regulatory Returns means the statements which are required to be presented by insurance companies under section 46 of the Ordinance. Published financial statements means the accounts which are required to be presented by a company under section 233 of the Companies Ordinance 1984. Policyholder liabilities has the meaning given under section 2 of the Insurance Ordinance. Reinsurance includes retrocession.

2.
(1)

Applicability
These Accounting Regulations shall be applied to the Regulatory Returns and the Published Financial Statements, except insofar as: (a) any of its provisions includes an express statement that it is not to apply to the regulatory returns or to the published financial statements, as the case may be; and (a) a provision contained in the Companies Ordinance or in Rules thereto or in an instrument issued thereunder overrides a provision in these Accounting Regulations so far as concerns the published financial statements.

(2)

Insurers shall comply, so far as concerns recognition and measurement of assets, liabilities, expenses and revenues, with International Accounting Standards adopted by the Institute of Chartered Accountants in Pakistan and notified by the Commission, other than those standards where these regulations specifically provide for a different treatment. Insurers need not comply with the provisions of these Accounting Regulations so far as concerns recognition and measurement of assets, liabilities, expenses and revenues to the extent that a recognition and measurement policy is adopted which results in recognition and measurement which is not materially different from that required by these Regulations.

(3)

3.
(1)

Provisions applicable only to Regulatory Returns

The form of Regulatory Returns shall consist of the following which shall be submitted according to the published Forms annexed to these Regulations: Balance Sheet (Form LA), which shall be deemed to constitute the Statement of Assets and Liabilities required by S46(1)(a)(i) of the Ordi nance. Profit and Loss Account (Form LB), which shall be deemed to constitute the statement of profits and losses for the shareholders fund required by S46(1)(a)(ii) of the Ordinance. Statement of Cash Flows (Form LC) required under S46(1)(a)(iii) of the Ordinance. Revenue Account (Form LD) required under S46(1)(a)(iv) of the Ordinance. Statement of Premiums (Form LE) required under S46(1)(a)(v) of the Ordinance. Statement of Claims (Form LF) required under S46(1)(a)(vi) of the Ordinance. Statement of Expenses (Form LG) required under S46(1)(a)(vii) of the Ordinance. Statement of Investment Income (Form LH) required under S46(1)(a)(viii) of the Ordinance. Statement of Assets for Solvency Purposes (Form LI) which is hereby prescribed under S46(1)(a)(ix) of the Ordinance. Classified Summary of Assets in Pakistan (Form LJ) which is hereby prescribed under S46(1)(a)(ix) of the Ordinance.

(2) (3)

Where an insurer controls other entities, consolidated Regulatory Returns are not required to be presented. Explanatory Notes are not required except as specified in these Regulations or as specified in the Forms.

4.
(1)

Provisions applicable only to Published Financial Statements

The form of Published Financial Statements shall consist of the following which shall be submitted according to the published Forms annexed to these Regulations: Required to be filed under S233 (5) of the Companies Ordinance 1984, for which the revised forms are being hereby prescribed under S52(1) of the Ordinance: - Balance Sheet (Form LA). - Profit and Loss Account (Form LB). - Revenue Account (Form LD). The following, being other statements which are hereby being prescribed under S52(2)(d) of the Ordinance, shall be deemed to be required under S233(5) of the Companies Ordinance 1984: - Statement of Cash Flows (Form LC). - Statement of Premiums (Form LE). - Statement of Claims (Form LF). - Statement of Expenses (Form LG). - Statement of Investment Income (Form LH).

(2)

Where the forms contain certain classifications which are not applicable to the reporting insurer, then such classifications may be removed from the Published Financial Statements.

(3)

Where an insurer controls other entities as a result of investments made through Statutory Funds, consolidated Published Financial Statements in respect of such entities are not required to be presented. To this extent the treatment prescribed in IAS 27 stands modified. The Published Financial Statements shall also include, as Notes to the Accounts, the details set out in Form LK annexed to these Regulations. Other information required to be disclosed by any International Accounting Standard, the Companies Ordinance 1984 or the listing rules of any stock exchange on which the shares of the insurer are listed shall also be disclosed as Notes to the Accounts. Any statement or Note included in the Published Financial Statements shall separately disclose, side by side, the amounts and other information to be reported in respect of the shareholders fund and in respect of the aggregate of the statutory funds. Disclosure, measurement and recognition requirements of the Companies Ordinance and of International Accounting Standards shall, subject to clause 2 of these Regulations, apply equally and separately to the amounts and other information presented in respect of the aggregated statutory funds and the amounts and other information presented in respect of the shareholders fund.

(4)

(5)

(6)

5.
(1)

Audit Report
Both the Regulatory Returns and Published Financial Statements shall be accompanied by an Audit Report as required under S48(2) of the Ordinance in accordance with the annexed format.

6.
(1)

Grossing up of assets and liabilities and of revenues and expenses

Otherwise than as stated in sub-clause (2), and sub -clause (3), balances relating to outwards reinsurance ceded by an insurer shall not be offset against balances relating to business written by the insurer, but shall constitute separate balances to be disclosed in the balance sheet, profit and loss account, statement of cash flows or other statement or notes thereto. Reinsurance taken into account in determining the amount of policyholder liabilities shall also be separately determined, and the value of policyholder liabilities excluding the effect of reinsurance and the value net of reinsurance shall be separately disclosed. Amounts due and receivable and payable between a reinsurer and a cedant may be offset and recognised net in the regulatory returns and the published financial statements, under the circumstance only that there is a clear legal right of offset of the amounts. This does not apply to underwriting balances.

(2)

(3)

7.
(1)

Premiums
Premiums shall be recognised as revenue when due and receivable from the policyholders, except that unpaid premiums shall be recognised as revenue only: (a) during days of grace as specified in the policy; or (b) where the actuarial valuation assumes that all premiums due have been received.

(2)

Where premiums due are recognized, all expenses which would fall due if the premiums had been received will be recognized as such.

(3)

Reinsurance premiums accepted where the reinsurance contract is on a proportional basis or where the term of the reinsurance contract is directly referable to the term of the underlying policy or policies shall be recognised as revenue in accordance with sub -clauses (1) and (2). Reinsurance premiums accepted where the reinsurance contract is on a non-proportional basis and the term of the reinsurance contract is not directly referable to the term of any underlying policy or policies shall be brought to account as revenue in accordance with the pattern of reinsurance service. Premiums accepted under a coinsurance or pool arrangement shall be considered to be revenue of the participating insurers each for their own share only, unless a contract of reinsurance exists under which an insurer has primary liability for the whole of the business and reinsures it to another or others.

(4)

(5)

8.
(1)

Claims
A liability for outstanding claims shall be recognised in respect of all claims incurred to balance date. Where outstanding claims are contractually payable within twelve months of the balance sheet date these must be measured at the undiscounted value of expected future payments. Where such claims are contractually payable over a period exceeding twelve months from the balance sheet date, then such claims should be stated at values determined by the Appointed Actuary using bases consistent with those used in the determination of policyholder liabilities A claim shall be considered to be incurred at the time of the incident giving rise to the claim, except as otherwise expressly indicated in a contract of insurance. The claims liability must include amounts in relation to unpaid reported claims, claims incurred but not reported, and expected claims settlement costs. The value at which claims incurred but not reported are stated in the financial statements shall be determined by the Appointed Actuary. In the case of investment-linked business, claims shall be recognised at the time at which the policy ceases to participate in the earnings of the fund.

(2) (3)

(4)

9.
(1)

Reinsurance expense
Premium ceded to reinsurers must be recognised as a liability as follows: (a) for reinsurance contracts operating on a proportional basis, or for which the term of the reinsurance contract is directly referable to the term of the underlying policy or policies, at the same point at which the premium of the underlying policy or policies is recognised as revenue. (b) for reinsurance contracts operating on a non-proportional basis, and for which the term of the reinsurance contract is not directly referable to the term of any underlying policy or policies, on inception of the reinsurance contract.

(2)

Over the period of reinsurance from inception to expiry, except as stated in sub-clause (3), reinsurance premium shall be recognised as an expense as follows: (a) For reinsurance contracts of a type described in sub-clause (1)(a), in full, at the same point at which the liability in respect of the reinsurance premium ceded is recognised.. (b) For contracts of a type described in sub-clause (1)(b), according to the pattern of reinsurance service. The portion of reinsurance premium not yet recognised as an expense shall be recognised as a prepayment.

(3)

10.
(1) (2)

Claims recoveries
Claims recoveries receivable from reinsurers and other recoveries receivable shall be recognised as assets. Claims recoveries receivable from reinsurers and other recoveries receivable shall be recognised at the same time as the claims which give rise to the right to the recovery are recognised.

11.
(1)

Reinsurance Profit Commission

Reinsurance profit commission should be recognized as an asset where such commission has contractually fallen due. Where the commission has not fallen due, any amount accrued may still be recognized as an asset, being calculated as if the contractual period for its determination ended on the balance sheet date. Where such accrual is significant the basis followed and the amount accrued should be disclosed in a note to the accounts.

12.
(1)

Expenses
Commissions and other expenses shall be recognised as expenses in the earlier of the financial year in which they are paid and the financial year in which they become due and payable, except that commissions and other expenses which are directly referable to the acquisition or renewal of specific contracts shall be recognised not later than the period in which the premium to which they refer is recognised as revenue. Where one fund owns assets which are used by another fund, such use shall be translated into an imputed transaction constituting revenue of the owning fund and an expense of the using fund. Where there is a clear and transparent method of ascertaining the fair value of the imputed transaction, then the transaction should be recognized at this value in the books of both the funds involved. In other cases the transaction shall be valued in terms of apportionment of cost. All expenses shall be apportioned equitably to the statutory and shareholders funds to which they relate and, within each statutory fund, to the groups of policies to which they relate. In determining equitable apportionment, regard shall be had to circumstances in which charges are made by one fund for the use of assets or facilities owned by that fund but used by another. No expenses shall be deferred to subsequent financial years other than as permitted by International Accounting Standards, and no expenses which are directly referable to the acquisition or renewal of specific contracts of insurance shall be deferred in any case; provided that taking of expenses into account in determining policyholder liabilities shall not be taken to constitute deferral of expenses. Expenses related to Employee Benefits and related liabilities shall be determined in accordance with IAS 19. However, where an insurer has not adopted IAS 19 as of the date of publication of these regulations, the insurer may provide for the liability as at the end of the immediately preceding financial year in equal instalments over a period not exceeding three years.

(2)

(3)

(4)

(5)

13.
(1)

Appropriation of profit by shareholders fund from statutory funds

An appropriation of profit from a statutory fund shall be recorded as an appropriation in the revenue account of that statutory fund in the financial period in which it is made, and shall not be recorded as an expense.

(2) (3)

An appropriation of profit from a statutory fund shall be recorded as revenue of the shareholders fund in the financial period in which it is made. A proposed appropriation of profit shall not be recorded as a liability of a statutory fund, or as an asset of the shareholders fund.

14.
(1) (2)

Shareholder interests in statutory funds

The shareholders fund shall not recognise as an asset any interest in, entitlement to the assets of or capital transfer provided to any statutory fund. A capital transfer provided to a statutory fund by the shareholders fund shall be recorded as a debit balance in shareholders equity, clearly identified as capital contributed to statutory fund, and changes in the amount of capital contributed to statutory funds shall not pass through the profit and loss account but shall be recorded in the financial statements of the shareholders fund as increases or decreases in that debit balance. No statutory fund shall recognise as a liability any amount due to the shareholders fund consisting of a capital transfer received from a shareholders fund, or retained profits attributable to shareholders, or any loan or advance, other than a current liability consisting of amounts due to the shareholders fund on account of expenses due to be reimbursed to the shareholders fund.

(3)

15.
(1)

Equity and policyholder funds

The amount representing the residue of assets left after all liabilities other than policyholder liabilities in the balance sheet of a statutory fund or the aggregated statutory funds balance sheet in the statutory accounts shall be disclosed as equity and policyholder funds. The following components of equity and policyholder funds shall be separately disclosed: (a) policyholder liabilities (inclusive of bonuses allocated); (b) retained earnings attributable to policy holders; (c) retained earnings arising from participating business, attributable to shareholders but not available for distribution; (d) retained earnings arising from participating business, attributable to shareholders and available for distribution; (e) retained earnings arising from business other than participating business, attributable to shareholders; (f) surplus not yet allocated; (g) shareholders capital in the statutory fund; and (h) such reserves, whether or not prescribed, as may be established by the statutory fund.

(2)

(3) (4)

The Notes to the financial statements shall include disclosure of movements in each of the accounts set out in sub-clause (2). Where financial statements are made up to a date as at which a valuation of policyholder liabilities in accordance with section 50 of the Ordinance is carried out by the companys appointed actuary, the amount of policyholder liabilities recorded in the financial statements shall be the greater of the amount of policyholder liabilities certified by the appointed actuary and the minimum actuarial reserve for policyholder liabilities. Where financial statements are made up to a date as at which a valuation of policyholder liabilities in accordance with section 50 of the Ordinance is not carried out by the companys appointed

(5)

actuary, the amount of policyholder liabilities recorded in the financial statements shall be the greater of the amount of policyholder liabilities certified by the appointed actuary and the minimum actuarial reserve for policyholder liabilities at the valuation most recently performed. (6) The financial statements shall show the allocation of surplus, if any, in the financial year, required to be made under section 21 of the Ordinance, and such accounts as are relevant shall be recorded following such allocation of surplus. Policyholder liabilities shall not include any bonuses proposed to be allocated to participating policies, unless before the balance date those amounts have been so allocated.

(7)

16.
(1)

Investments and Investment Properties

For the purpose of all statements prepared under these regulations, and for the purpose of S34 (1) of the Insurance Ordinance 2000: a) available for sale investments shall be stated at the lower of cost or market value (market value being taken as lower if the fall is other than temporary). In the case of fixed income investments redeemable at a given date and where the cost is different from the redemption value, such difference shall be amortized uniformly between the date of acquisition and the date of maturity in determining "cost" .The market value of investments at the balance sheet date shall be disclosed, as shall the effect of non-compliance with IAS 39; b) Investment Properties shall be stated on the basis of Cost Model under IAS - 40. In case there is any impairment in the value then this shall be recognised. The market value of properties shall be determined at least once in every financial year and disclosed, as shall the effect of non-compliance with IAS 40.

(2) (3)

For the purpose of this regulation in determining the market value allowance shall be made for expected disposal costs. Where an asset entitles the owner to revenue streams at a specified rate of return or at no rate of return, and those revenue streams extend beyond one year from the reporting date, the market value of such an asset owned by an insurer shall not be disclosed at more than the discounted cash flow of the estimated revenue streams earned under that asset, discounted at the risk-free rate of return. The appointed actuary may, in the determination of policyholder liabilities, take into account the value placed on investments under these regulations, In particular the appointed actuary may, in the case of investment linked funds where assets are valued at prices lower than those used for determining benefits payable under the policy, adjust the net asset value used to determine policyholder liabilities to reflect the values being placed on investments under these regulations. Alternatively all available for sale investments will be valued on fair value basis as required under the IAS - 39. The option out of the above shall be selected once and disclosed as a policy in the financial statements which shall be followed consistently.

(4)

17.

Admissibility of Assets

(1)

The value of assets for the purposes of the Balance Sheet shall be in accordance with the companys accounting policies for such assets and the method of assigning values to investments provided for in these regulations . Where the value of any asset arrived at in accordance with sub-clause (1) is different from the value which may be treated as admissible under S32 of the Ordinance, then the Regulatory Returns will include Form LI (Statement of Assets for Solvency Purposes) where the value of assets should be limited to the amount to which they are admissible and an additional line indicating the total value of inadmissible assets should be inserted in arriving at the figure for TOTAL ASSETS.

(2)

18.
(1)

Contingencies and Commitments

As required by the International Accounting Standard for contingent assets and liabilities (IAS 37), all contingent liabilities other than those arising from contracts with policyholders, shall be disclosed, unless the possibility of an outflow of resource embodying economic benefits is remote. In addition all material commitments should also be disclosed. This should include all commitments contractually entered into with third parties, other than under contracts of insurance, to the extent not yet reflected in the financial statements.

(2)

Part B. 1.
(1) (2) (3) (4)

Accounting Regulations for Non-life Insurance

Definitions and interpretations

The Ordinance means the Insurance Ordinance 2000. The Commission means the Securities and Exchange Commission of Pakistan. Regulatory Returns means the statements which are required to be presented by insurance companies under section 46 of the Ordinance. Published financial statements means the accounts which are required to be presented by a company under section 233 of the Companies Ordinance 1984 or by branches of a foreign insurer under S 453 of the Companies Ordinance 1984. Reinsurance includes retrocession.

(5)

2.
(1)

Applicability
These Accounting Regulations shall be applied to the Regulatory Returns and the Published Financial Statements, except insofar as: (a) any of its provisions includes an express statement that it is not to apply to the regulatory returns or to the published financial statements, as the case may be; and (b) a provision contained in the Companies Ordinance or in Rules thereto or in an instrument issued thereunder overrides a provision in these Accounting Regulations so far as concerns the published financial statements. Insurers shall comply, so far as concerns recognition and measurement of assets, liabilities, expenses and revenues, with International Accounting Standards adopted by the Institute of Chartered Accountants in Pakistan and notified by the Commission, other than those standards where these regulations specifically provide for a different treatment. Insurers need not comply with the provisions of these Accounting Regulations so far as concerns recognition and measurement of assets, liabilities, expenses and revenues to the extent that a recognition and measurement policy is adopted which results in recognition and measurement which is not materially different from that required by these Regulations.

(2)

(3)

3.
(1)

Provisions applicable only to Regulatory Returns

The form of Regulatory Returns shall consist of the following which shall be submitted according to the published Forms annexed to these Regulations: Balance Sheet (Form GA), which shall be deemed to constitute the Statement of Assets and Liabilities required by S46(1)(b)(i) of the Ordinance. Profit and Loss Account (Form GB), which shall be deemed to constitute the statement of profits and losses required by S46(1)(b)(ii) of the Ordinance. Statement of Cash Flows (Form GC) required under S46(1)(b)(iii) of the Ordinance. Statement of Premiums (Form GD) required under S46(1)(b)(iv) of the Ordinance. Statement of Claims (Form GE) required under S46(1)(b)(v) of the Ordinance. Statement of Expenses (Form GF) required under S46(1)(b)(vi) of the Ordinance. Statement of Investment Income (Form GG) required under S46(1)(b)(vii) of the Ordinance. Statement of Claims Analysis (Form GH) required under S46(1)(b)(viii) of the Ordinance.

(2) (3)

Statement of Exposures (Form GI) required under S46(1)(b)(ix) of the Ordinance. Statement of Assets for Solvency Purposes (Form GJ) which is hereby prescribed under S46(1)(b)(x) of the Ordinance. - Classified Summary of Assets in Pakistan (Form GK) which is hereby prescribed under S46(1)(b)(x) of the Ordinance. Where an insurer controls other entities, consolidated Regulatory Returns are not required to be presented. Explanatory Notes are not required except as specified in these Regulations or as specified in the Forms.

1.
(1)

Provisions applicable only to Published Financial Statements

The form of Published Financial Statements shall consist of the following which shall be submitted according to the published Forms annexed to these Regulations: Required to be filed under S233 (5) of the Companies Ordinance 1984, for which the revised forms are being hereby prescribed : - Balance Sheet (Form GA). - Profit and Loss Account (Form GB). The following which shall be deemed to be required under S233(5) of the Companies Ordinance 1984: - Statement of Cash Flows (Form GC). - Statement of Premiums (Form GD). - Statement of Claims (Form GE). - Statement of Expenses (Form GF). - Statement of Investment Income (Form GG).

(2) (3)

Where the forms contain certain classifications which are not applicable to the reporting insurer, then such classifications may be removed from the Published Financial Statements. The Published Financial Statements shall also include, as Notes to the Accounts, the details set out in Form GL annexed to these Regulations. Other information required to be disclosed by any International Accounting Standard, the Companies Ordinance 1984 or the listing rules of any stock exchange on which the shares of the insurer are listed shall also be disclosed as Notes to the Account.

2.
(1)

Analysis of Revenue Account, Premiums, Claims and Expenses

Some of the published forms annexed to these Regulations provide an analysis of revenue and expenditure items by class of business. Separate figures for any class of business are required if the gross premiums for that class constitutes 10% or more of the gross premium revenue of the insurer. Amounts relating to classes constituting less than 10% may be clubbed together as Other Classes. If an insurer writes business outside Pakistan and the gross premium revenue relating to such business (as included in the financial statements) comprises 10% or more of the gross premium revenue of the insurer, then a complete set of financial statements (applicable both to Regulatory Returns and Published Financial Statements) shall be prepared for such business, using the published forms. This shall not apply to Forms GA and GJ.

(2)

3.
(1)

Audit Report
Both the Regulatory Returns and Published Financial Statements shall be accompanied by an Audit Report as required under S48(2) of the Ordinance in accordance with the annexed format.

4.
(1)

Grossing up of assets and liabilities and of revenues and expenses

Otherwise than as stated in sub-clause (2) or sub -clause (3), balances relating to outwards reinsurance ceded by an insurer shall not be offset against balances relating to business written by the insurer, but shall constitute separate balances to be disclosed in the balance sheet, profit and loss account, statement of cash flows or other statement or notes thereto. Amounts due and receivable and payable between a reinsurer and a cedant may be offset and recognised net in the regulatory returns and the published financial statements, under the circumstance only that there is a clear legal right of offset of the amounts. An amount of premium recognised but not yet due and receivable may be offset against the liability for unearned premium in respect of that premium, and an amount of reinsurance premium recognised but not yet due and payable may be offset against the asset representing the deferred portion of that reinsurance premium, under the circumstance only that the contract of insurance or of reinsurance, as the case may be, to which the premium relates is capable of cancellation, and to the extent only that the premium not yet receivable or not yet payable as the case may be will not become receivable or payable in the event that the contract of insurance or reinsurance is cancelled prior to the date at which the amount of premium becomes otherwise due and receivable or payable.

(2)

(3)

5.
(1) (2)

Premiums
Premium receivable under a policy shall be recognised as written from the date of attachment of the policy to which it relates. Over the period of insurance from inception to expiry, except as stated in sub-clause (3), premium shall be recognised as revenue as follows: (a) For direct business, evenly over the period of the policy (b) For proportional reinsurance business, evenly over the period of the underlying policies. (c) For non-proportional reinsurance business, in accordance with the pattern of reinsurance service. Where the pattern of incidence of risk varies over the period of the policy, the premium shall be recognised as revenue in accordance with the pattern of incidence of risk. The unearned portion of premium income shall be recognised as a liability. Such liability shall be calculated either : (a) as a proportion of the gross premium of each policy, determined as the ratio of the unexpired period of the policy and the total period, both measured to the nearest day; or (b) where the majority of policies are issued for one year, by applying the twenty-fourths method, whereby the liability shall equal 1/24 of the premiums relating to policies commencing in the first month of the insurers financial year, 3/24 of the premiums

(3) (4)

relating to policies commencing in the second month of the insurers financial year, and so on. (5) Premium adjustments not yet processed, and premium not yet processed but relating to the financial year shall, so far as is practicable, be recognised as a receivable and earned over the period in accordance with these rules. Premium revenue shall not include any levy which is an amount collected on behalf of a third party. Any levy charged on premiums which is not an amount collected on behalf of a third party shall be considered to be part of premium. Premiums accepted under a coinsurance or pool arrangement shall be considered to be revenue of the participating insurers each for their own share only, unless a contract of reinsurance exists under which an insurer has primary liability for the whole of the business and reinsures it to another or others. Where premiums for a policy are payable in instalments, the full premium for the duration of the policy shall be recognized as income at the inception of the policy and a related asset set up for premiums, notwithstanding the fact that some instalments may not, by agreement between the insurer and the insured, be payable until later.

(6) (7) (8)

(9)

6.
(1) (2) (3)

Claims
A liability for outstanding claims shall be recognised in respect of all claims incurred to balance date, and must be measured at the undiscounted value of expected future payments. A claim shall be considered to be incurred at the time of the incident giving rise to the claim, except as otherwise expressly indicated in a contract of insurance. The claims liability must include amounts in relation to unpaid reported claims, claims incurred but not reported, and expected claims settlement costs.

7.
(1)

Reinsurance expense
Premium ceded to reinsurers must be recognised as a liability as follows: (a) for reinsurance contracts operating on a proportional basis, on attachment of the underlying policies reinsured. (b) for reinsurance contracts operating on a non-proportional basis, on inception of the reinsurance contract. Over the period of reinsurance from inception to expiry, except as stated in sub-clause (3), reinsurance premium shall be recognised as an expense as follows: (a) For proportional reinsurance business, evenly over the period of the underlying policies. (b) For non-proportional reinsurance business, evenly over the period of indemnity. Where the pattern of incidence of risk varies over the period of the policy, the premium shall be recognised as an expense in accordance with the pattern of incidence of risk. The portion of reinsurance premium not yet recognised as an expense shall be recognised as a prepayment.

(2)

(3) (4)

(5)

Premium adjustments not yet processed, and premium not yet processed but relating to the financial year shall, so far as is practicable, be recognised as a liability and brought to account as an expense in accordance with these rules.

8.
(1) (2)

Claims recoveries
Claims recoveries receivable from reinsurers and other recoveries receivable shall be recognised as assets and measured at the amount expected to be received. Claims recoveries receivable from reinsurers and other recoveries receivable shall be recognised at the same time as the claims which give rise to the right to the recovery are recognised.

9.
(1)

Acquisition costs
Commissions and other acquisition costs incurred in obtaining and recording policies of insurance and reinsurance may be deferred and recognised as assets where they can be reliably measured and it is probable that they will give rise to premium revenue that will be recognised in subsequent reporting periods. Deferred acquisition costs must be amortised systematically over the reporting periods over which the related premium revenue is recognized.

(2)

10.
(1)

Employee Benefits
Expenses related to Employee Benefits and related liabilities shall be determined in accordance with IAS 19. However, where an insurer has not adopted IAS 19 as of the date of publication of these regulations, the insurer may provide for the liability as at the end of the immediately preceding financial year in equal instalments over a period not exceeding three years.

11.
(1)

Exchange commissions
Exchange commissions, profit commissions and other forms of revenue (apart from recoveries) receivable from reinsurers shall be deferred and brought to account as revenue in accordance with the pattern of recognition of the reinsurance premiums to which they relate.

12.
(1)

Premium deficiency
Where the unearned premium liability for any class of business is not adequate to meet the expected future liability, after reinsurance, from claims and other expenses, including reinsurance expense, commissions and other underwriting expenses, expected to be incurred after balance date in respect of policies in that class of business in force at balance date, a premium deficiency reserve shall be recognised as a liability to meet the deficit. The movement in the premium deficiency reserve shall be recorded as an expense and shall form a part of the underwriting result.

(2)

13.
(1)

Investments and Investment Properties

For the purpose of all statements prepared under these regulations, and for the purpose of S34 (1) of the Insurance Ordinance 2000:

a) available for sale investments shall be stated at the lower of cost or market value (market value being taken as lower if the fall is other than temporary). In the case of fixed income investments redeemable at a given date and where the cost is different from the redemption value, such difference shall be amortized uniformly between the date of acquisition and the date of maturity in determining "cost" .The market value of investments at the balance sheet date shall be disclosed, as shall the effect of non-compliance with IAS 39; b) Investment Properties shall be stated on the basis of Cost Model under IAS - 40. In case there is any impairment in the value then this shall be recognised. The market value of properties shall be determined at least once in every financial year and disclosed, as shall the effect of non-compliance with IAS 40. (2) For the purpose of this regulation in determining the market value allowance shall be made for expected disposal costs. Where an asset entitles the owner to revenue streams at a specified rate of return or at no rate of return, and those revenue streams extend beyond one year from the reporting date, the market value of such an asset owned by an insurer shall not be disclosed at more than the discounted cash flow of the estimated revenue streams earned under that asset, discounted at the risk-free rate of return.

(3)

14.
(1)

Admissibility of Assets
The value of assets for the purposes of the Balance Sheet shall be in accordance with the companys accounting policies for such assets and the method of assigning values to investments provided for in these regulations . Where the value of any asset arrived at in accordance with sub-clause (1) is different from the value which may be treated as admissible under S32 of the Ordinance, then the Regulatory Returns will include Form GJ (Statement of Assets for Solvency Purposes) where the value of assets should be limited to the amount to which they are admissible and an additional line indicating the total value of inadmissible assets should be inserted in arriving at the figure for TOTAL ASSETS.

(2)

15.
(1)

Contingencies and Commitments

As required by the International Accounting Standard for contingent assets and liabilities (IAS 37), all contingent liabilities other than those arising from contracts with policyholders, shall be disclosed, unless the possibility of an outflow of resource embodying economic benefits is remote. In addition all material commitments should also be disclosed. This should include all commitments contractually entered into with third parties, other than under contracts of insurance, to the extent not yet reflected in the financial statements.

(2)

Forms for life insurers Company Name: Financial Year ended 31 December ........... Balance Sheet FORM LA

Figures in Rs 000 Shareholders Statutory Fund Aggregate Fund Ordinary life Ordinary life Capital Pension fund Accident & current (investment redemption health year linked) Aggregate prior year

Cash and Bank Deposits Cash and others Current and other accounts Deposits maturing within 12 months Fixed Deposits maturing after 12 months

Loans Secured Against Life Insurance Policies Loans Secured Against other assets To employees or agents Others

Unsecured Loans To employees or agents Others

Investment Property Investments Government Securities Other Fixed Income Securities Listed Equities Unlisted Equities Others (Please specify)

Deferred Taxation Preliminary and Deferred Expenses Current Assets - Others Premiums due but unpaid Amounts due from other insurers/ reinsurers Taxation - payments less provision Prepayments Sundry receivables Others (Please specify)

Fixed Assets Tangible & Intangible Land and Buildings Capital Work in Progress Furniture, Fixtures, Office Equipment and Vehicles Intangibles (Please specify) Others (Please specify)

TOTAL ASSETS

The annexed notes form an integral part of these accounts.

Chairman

Director

Director

Company Name: Financial Year ended 31 December ........... Balance Sheet

FORM LA

Figures in Rs 000 Shareholders Statutory Fund Aggregate Fund Ordinary life Ordinary life Capital Pension fund Accident & current (investment redemption health year linked) Aggregate prior year

Share Capital and Reserves Authorised Share Capital Issued, subscribed and paid up Share Capital Accumulated Surplus/(Deficit) Other Reserves (describe) Less: Capital contributed by shareholders fund Net Shareholders' Equity

Balance of statutory fund (including policyholder liabilities Rs. Prior year: Rs. ) Deferred Liabilities Deferred Taxation Staff Retirement Benefits Others

Creditors and Accruals Outstanding claims (including IBNR) Premiums Received in Advance Amounts due to other insurers/reinsurers Accrued Expenses Taxation - Provision less payments Other Creditors and Accruals (Please specify)

Borrowings Short term running finance Loans received from banks Other loans Other debt security issued Other liabilities Other liabilities (please specify) TOTAL LIABILITIES

TOTAL EQUITY AND LIABILITIES CONTINGENCIES AND COMMITMENTS (if applicable)

The annexed notes form an integral part of these accounts.

Chairman

Director

Director

Company Name: Financial Year ended 31 December ........... Profit and Loss Account

FORM LB

Figures in Rs 000 Current Year Prior Year

Investment income not attributable to statutory funds Income from Trading Investments -Gain/loss on trading -Dividend Income -Others, if any (Please specify) Income from Non-Trading Investments Held to Maturity or Available for sale (classify as appropriate) -Return on Government Securities -Return on Other Fixed Income Securities and Deposits -Dividend Income Others (Please specify)

Gain/Loss on Sale of Investments Available for Sale Gain/Loss on Revaluation of Investments - Trading Investments - Available for sale Provision for Impairment in Value of Investments -Provision for Portfolio Held to Maturity -Provision for Portfolio Available for Sale

Less: Investment Related Expenses Net Investment Income Rental Income from Investment Property Other revenue (provide details)

Expenses not attributable to statutory funds (provide details) Surplus transferred from statutory funds

Profit/(Loss) before tax (and extraordinary items, if any) Extraordinary items (provide details) Profit/(Loss) before Tax and after extraordinary items Tax expense Profit/(Loss) after tax

Profit and Loss Appropriation Account Balance at commencement of year Profit for the year Prior Year Adjustments (provide details) Dividends paid Transfers to/(from) reserves (provide details) Other appropriations (provide details) Balance at end of year

The annexed notes form an integral part of these accounts.

Chairman

Director

Director

Page 1 of 8

Company Name: FORM LC Financial Year ended 31 December ........... Figures in Rs 000 Statement of Cash Flows Shareholders' fund Operating Cash Flows a) Underwriting activities Premiums received Reinsurance premiums paid Claims paid Surrenders paid Reinsurance and other recoveries received Commissions paid Commissions received Other underwriting payments, if any Other underwriting receipts, if any Net cash flow from underwriting activities b) Other operating activities Income tax paid General management expenses paid Other operating payments Other operating receipts Loans advanced Loan repayments received Other payments on operating assets Other receipts in respect of operating assets Net cash flow from other operating activities Total cash flow from all operating activities 0 0 0 0 0 0 0 0 0 0 0 0 0 0 XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX 0 0 0 0 0 0 0 Ordinary life (investment linked) Ordinary life Statutory Fund Capital Pension fund redemption Accident & health Aggregate current year Aggregate prior year

Page 2 of 8

Company Name: FORM LC Financial Year ended 31 December ........... Figures in Rs 000 Statement of Cash Flows Shareholders' fund Operating Cash Flows Ordinary life (investment Ordinary life Statutory Fund Capital Pension fund redemption Accident & health Aggregate current year Aggregate prior year

Investment activities Profit/ Return received Dividends received Rentals received Payments for investments Proceeds from disposal of investments Fixed Capital Expenditure Proceeds from disposal of fixed assets Total cash flow from investing activities 0 0 0 0 0 0 0

Financing activities Share capital received Loans received Loans repaid Capital payments received by statutory funds Capital payments repaid by statutory funds Surplus appropriated to shareholders' fund Dividends paid Financial charges paid Payments on finance leases Total cash flow from financing activities Net cash inflow/outflow from all activities Cash at the beginning of the year Cash at the end of the year XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX

XXXXXXXX XXXXXXXX

XXXXXXXX XXXXXXXX

XXXXXXXX XXXXXXXX

XXXXXXXX XXXXXXXX

XXXXXXXX XXXXXXXX

Page 3 of 8

Company Name: FORM LC Financial Year ended 31 December ........... Figures in Rs 000 Statement of Cash Flows Shareholders' fund Operating Cash Flows Reconciliation to Profit and Loss Account Operating cash flows Depreciation expense Financial charges expense Profit/(loss) on disposal of fixed assets Increase/(decrease) in assets other than cash (Increase)/decrease in liabilities other than running finance Revaluation adjustment Other adjustments (please specify) Profit or loss after taxation (must agree to Profit and Loss Account (shareholders' fund only)) 0 Ordinary life (investment Ordinary life Statutory Fund Capital Pension fund redemption Accident & health Aggregate current year Aggregate prior year

Definition of cash Please provide a definition of which items have been treated as cash for the purposes of this statement, and if different from Cash and Overdrafts as disclosed in the Balance Sheet, provide a reconciliation. Cash for the purposes of the Statement of Cash Flows consists of:

The annexed notes form an integral part of these accounts.

Page 4 of 8

Company Name: FORM LC Financial Year ended 31 December ........... Figures in Rs 000 Statement of Cash Flows Shareholders' fund Operating Cash Flows Chairman Director Ordinary life (investment Director Ordinary life Statutory Fund Capital Pension fund redemption Accident & health Aggregate current year Aggregate prior year

Page 5 of 8

Company Name: Financial Year ended 31 December ........... Revenue Account Ordinary life Ordinary life (investment linked) Statutory Fund Capital Pension fund Accident & redemption health

FORM LD Figures in Rs 000 Aggregate current year Aggregate prior year

Income
A B C D

Premiums less Reinsurances Policy Transfers from Other Statutory Funds Rental Income from Investment Property Net Investment Income Total Net Income

D =A+B+C

Claims and Expenditure

E F G

Claims, including bonuses, net of reinsurance recoveries Policy Transfers to Other Statutory Funds Management Expenses less Recoveries Total Claims and Expenditure Excess of Income over Claims and Expenditure Add : Policyholder Liabilities at Beginning of Year Less : Policyholder Liabilities at End of Year Surplus/(Deficit) Before Tax Taxes chargeable to statutory funds - Current year - Prior year(s) - Deferred

H=SUM(E to G)

I = D-H

J K

L=I+J-K

Total Taxes Surplus/(Deficit) After Tax Movement in policy holder liabilities Transfers to or from Shareholders' Fund - Surplus appropriated to Shareholders' Fund - Capital returned to Shareholders' Fund - Capital contributions from Shareholders' Fund

N=L-M

Net transfer to/from Shareholders' Fund Balance of Statutory Fund at Beginning of Year Balance of Statutory Fund at End of Year Represented by: Capital contributed by shareholders' fund Policyholder liabilities Retained earnings attributable to policyholders Retained earnings on par business attributable to shareholders Retained earnings on par business attributable to shareholders Retained earnings on other than participating business Other equity/reserves, if any (please specify) BALANCE OF STATUTORY FUND

R=N+O+P+Q

The annexed notes form an integral part of these accounts.

Chairman

Director

Director

Company Name: Financial Year ended 31 December ........... Statement of Premiums Statutory Fund Capital Pension fund redemption

FORM LE Figures in Rs 000 Aggregate current year Aggregate prior year

Gross Premiums Regular Premium Individual Policies* First year Second year renewal Subsequent year renewal Single Premium Individual Policies Group Policies with Cash Values Group Policies without Cash Values Annuities Total Gross Premiums Less: Reinsurance Premiums Ceded On individual policies On group policies On annuities

Ordinary life Ordinary life (investment linked)

Accident & health

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0

0 0 0

Net Premiums

* Individual policies are those underwritten on an individual basis, and includes joint life policies underwritten as such

The annexed notes form an integral part of these accounts.

Chairman

Director

Director

Company Name: Financial Year ended 31 December ........... Statement of Claims Figures in Rs 000 Statutory Fund Capital Pension fund Accident & redemption health Aggregate current year

FORM LF

Gross Claims Claims under individual policies (including provision for claims intimated or incurred but not reported) by death by insured event other than death by maturity by surrender annuity payments bonus in cash

Ordinary life Ordinary life (investment linked)

Aggregate prior year

0 0 0 0 0 0 0

0 0 0 0 0 0 0

Total gross individual policy claims Claims under group policies (including provision for claims intimated or incurred but not reported) by death by insured event other than death by maturity by surrender annuity payments bonus in cash experience refund Total gross group claims Total Gross Claims

0 0 0 0 0 0 0

0 0 0 0 0 0 0

Less: Reinsurance Recoveries On individual claims On group claims On ordinary annuities

0 0 0

0 0 0

Net Claims

The annexed notes form an integral part of these accounts.

Chairman

Director

Director

Company Name: Financial Year ended 31 December ........... Statement of Expenses Statutory Fund Capital Pension fund Accident & redemption health

FORM LG Figures in Rs. 000 Aggregate current year Aggregate prior year

Ordinary life Ordinary life (investment linked) Acquisition Costs Remuneration to insurance intermediaries on individual policies: - commission on first year premiums - commission on second year premiums - commission on subsequent renewal premiums - commission on single premiums - other benefits to insurance intermediaries Remuneration to insurance intermediaries on group policies: - commission - other benefits to insurance intermediaries Branch overheads Other acquisition costs (provide details)

0 0

0 0

0 0 0

0 0 0

Administration Expenses Salaries and other benefits Traveling expenses Directors' fees Auditors' fees Actuary's fees Medical fees Legal expenses Advertisements Computer expenses Printing and stationery Depreciation Rental Bad and doubtful debts Others (Please specify)

Other management expenses Gross management expenses Commission from reinsurers Management expenses recovered from other funds Fees charged to policyholders Net management expenses 0 0 0 0 0 0 0 0 0 0 0 0 0 0

The annexed notes form an integral part of these accounts.

Chairman

Director

Director

Company Name: Financial Year ended 31 December ........... Statement of Investment Income

FORM LH

Figures in Rs 000 Statutory Fund Aggregate Ordinary life Ordinary life Capital Pension fund Accident & current (investment redemption health year linked) Income from Trading Investments Gain/loss on trading (I.e. buying and selling difference) Dividend Income ( earned while holding the securities) Others, if any (Please specify) 0 0 Aggregate prior year

0 0

Income from Non-Trading Investments Held to Maturity or Available for sale (classify as appropriate) Return on Government Securities Return on Other Fixed Income Securities and Deposits Dividend Income Amortisation of discount/premium relative to par Others, if any (Please specify) 0 0 0 0 0 0 0 0 0 0

Gain/Loss on Sale of Non-Trading Investments (classify as appropriate) Gain/Loss on Revaluation of Investments - Trading Investments - Available for sale, if applicable

0 0

0 0

Other investment income (Please specify) Provision for Impairment in Value of Investments Provision for Portfolio Held to Maturity Provision for Portfolio Available for Sale Others (Please specify)

0 0 0

0 0 0

Less: Investment Related Expenses

Net Investment Income

The annexed notes form an integral part of these accounts.

Chairman

Director

Director

Company Name: Financial Year ended 31 December ........... Statement of Assets for Solvency Purposes

FORM LI

Figures in Rs 000 Shareholders Statutory Fund Aggregate Fund Ordinary life Ordinary life Capital Pension fund Accident & current (investment redemption health year linked) Aggregate prior year

ADMISSIBLE ASSETS Cash and Bank Deposits Cash and others Current and other accounts Deposits maturing within 12 months Fixed Deposits maturing after 12 months

Loans Secured Against Life Insurance Policies Loans Secured Against other assets To employees or agents Others

Unsecured Loans To employees or agents Others

Investment Property Investments Government Securities Other Fixed Income Securities Listed Equities Unlisted Equities Others (Please specify)

Deferred Taxation Preliminary and Deferred Expenses Current Assets - Others Premiums due but unpaid Amounts due from other insurers/ reinsurers Taxation - payments less provision Prepayments Sundry receivables Others (Please specify)

Fixed Assets Tangible & Intangible Land and Buildings Furniture, Fixtures, Office Equipment and Vehicles Capital Work in Progress Intangibles (Please specify) Others (Please specify)

TOTAL ADMISSIBLE ASSETS TOTAL INADMISSIBLE ASSETS

TOTAL ASSETS

The annexed notes form an integral part of these accounts.

Chairman

Director

Director

Company Name: Financial Year ended 31 December ........... Classified Summary of Assets in Pakistan

FORM LJ

Figures in Rs 000 Current year Prior year Valuation Remarks Cost or book Market value Cost or book Market value basis value value CLASS OF ASSETS

TOTAL ASSETS

The annexed notes form an integral part of these accounts.

Chairman

Director

Director

Company Name: Financial Year ended 31 December ........... Note to the accounts

FORM LK

1.

STATUS AND NATURE OF BUSINESS Disclose the domicile and legal form of the company, its country of incorporation and the address of the registered office (or principal place of business, if different from the registered office); a description of the nature of its operations and its principal activities; the name of the parent enterprise and the ultimate parent enterprise of the group.

2.

BASIS OF PRESENTATION

3.

STATEMENT OF COMPLIANCE

4. 5.

BASIS OF MEASUREMENT SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, such as: Loans Secured Against Life Insurance Policies Investment Property Investments Preliminary and Deferred Expenses

Revenue recognition - Premiums Claims Acquisition costs

Operating fixed assets Capital work-in-progress Property and equipment (owned and leased) Intangible Taxation Current Deferred Staff retirement benefits Defined benefit plan Defined contribution plan Foreign currencies Others (to be specified)

Company Name: Financial Year ended 31 December ........... Note to the accounts

FORM LK

Figures in Rs 000 Statutory Fund Ordinary life Ordinary life Capital Pension fund (investment redemption linked) Aggregate current year

6.

MOVEMENTS IN EQUITY Policyholder liabilities Balance at the beginning of the year Increase/(decrease) during the year Balance at end of the year Retained earnings attributable to policyholders Balance at the beginning of the year Surplus allocated in respect of the year Surplus adjustment (if any) Bonuses allocated during the year Other movements, if any (please specify) Balance at end of the year

Accident & health

Retained earnings on par business attributable to shareholders (un-distributable) Balance at the beginning of the year Surplus allocated in respect of the year Surplus adjustment (if any) Transfers to distributable profits Other movements, if any (please specify) Balance at end of the year Retained earnings on par business attributable to shareholders (distributable) Balance at the beginning of the year Surplus adjustment (if any) Transfer from un-distributable profits Surplus appropriated to shareholders' fund Other movements, if any (please specify) Balance at end of the year Retained earnings on other than participating business Balance at the beginning of the year Surplus allocated in respect of the year Surplus appropriated to shareholders' fund Other movements, if any (please specify) Balance at end of the year Capital contributed by shareholders' fund Balance at beginning of year Capital contributed during the year Capital withdrawn during the year Capital appropriated as bonuses during the year Other increases/(decreases), if any (please specify) Balance at end of the year Other equity/reserves Balance at the beginning of the year Increase/(decrease) during the year (provide details) Balance at end of the year

7.

STATUTORY DEPOSIT

Company Name: Financial Year ended 31 December ........... Note to the accounts

FORM LK

Figures in Rs 000 8. RENTAL INCOME FROM INVESTMENT PROPERTIES Rents Received Increase / (decrease) in accrued rental income Provision / Reversal of Provision for Diminution in value of investment property

Chairman

Director

Director

Figures in Rs 000 Aggregate prior year

FORM LK Figures in Rs 000

AUDITORS REPORT TO THE MEMBERS OF A LIFE INSURANCE COMPANY We have audited the annexed financial statements comprising of: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) balance sheet; profit and loss account; statement of changes in equity; cash flow statement; revenue account; statement of premium; statement of claims; statement of expenses; and statement of investment income

of . as at together with the notes forming part thereof, for the year then ended. It is the responsibility of the Companys Board of Directors/Management to establish and maintain a system of internal control, and prepare and present the financial statements in conformity with the International Accounting Standards as applicable in Pakistan and the requirements of the Insurance Ordinance, 2000 (XXXIX of 2000) and the Companies Ordinance, 1984 (XLVII of 1984). Our responsibility is to express an opinion on these statements based on our audit. We conducted our audit in accordance with the International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting policies used and significant estimates made by management, as well as, evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion ----(a) (b) proper books of accounts have been kept by the Company as required by the Insurance Ordinance, 2000; the financial statements together with the notes thereon have been drawn up in conformity with the Insurance Ordinance, 2000 and the Companies Ordinance,1984, and accurately reflect the books and records of the Company; The financial statements together with the notes thereon present fairly, in all material respects, the state of the Companys affairs as at _________________ in accordance with International Accounting Standards as applicable in Pakistan, and the information required to be disclosed by the Insurance Ordinance, 2000 and the Companies Ordinance, 1984; The apportionment of assets, liabilities, revenue and expenses between two or more funds has been performed in accordance with the advice of the appointed actuary; Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), was deducted by the company and deposited in the Central Zakat Fund established under Section7 of that Ordinance. Signature [Name(s) of Auditors]

(c)

(d) (e)

Date .. Place

NOTES
1. Where no Zakat is deductible, substitute no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980. Where any of the matter referred to in the Auditors Report is answered in the negative or with a qualification, the report shall state the reason for such answers along with the factual position to the best of the auditors information.

2.

Forms for non-life insurers

FORM GA Company Name: Financial Year ended 31 December ........... Balance Sheet Figures in Rs 000 Note Current Year Rs Prior Year Rs Cash and Bank Deposits Cash and other equivalent Current and other accounts Deposits maturing within 12 months Deposits maturing after 12 months Note Current Year Rs Prior Year Rs

Share Capital and Reserves Domestic companies Authorised Share Capital Paid-up share capital Retained earnings Reserves Other equity (please specify) Foreign companies Head office account Other domestic equity (please specify)

Loans (Secured or un-secured - classify as appropriate) To employees or agents Others

Investments Underwriting provisions Provision for outstanding claims (including IBNR) Provision for unearned premium Additional provision for unexpired risks Commission income unearned Total underwriting provisions Deferred Liabilities Deferred Taxation Staff Retirement Benefits Others (please specify) Current Assets - Others Premiums due but unpaid Amounts due from other insurers/ reinsurers Reinsurance recoveries due but unpaid Salvage recoveries accrued Premium and claim reserves retained by cedants Accrued investment income Reinsurance recoveries against outstanding claims Taxation - payments less provision Deferred commission expense Other deferred acquisition costs Prepayments Sundry receivables (provide details) Fixed Assets Tangible & Intangible Land and Buildings Furniture, Fixtures and Office Equipment Motor Vehicles Capital Work in Progress Intangibles (Please specify)

Investment Property Deferred Taxation Preliminary and Deferred Expenses

Creditors and Accruals Premiums Received in Advance Amounts due to other insurers/reinsurers Accrued Expenses Taxation - Provision less payments Other Creditors and Accruals (describe) Borrowings Short term running finance Loans received from banks Other loans Other debt security issued Other liabilities Other liabilities (please specify) TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES CONTINGENCIES AND COMMITMENTS (if applicable) The annexed notes form an integral part of these accounts.

TOTAL ASSETS

Chairman (If any)

Director

Director

Principal Officer

Company Name: Financial Year ended 31 December ...........

FORM GB

Figures in '000 Profit and Loss Account Note Fire Marine, Motor Act Liability & Aviation & Property Transport Others Treaty Current Prior Year Year Aggregate Aggregate

Revenue Account Net Premium Revenue

Net Claims

Premium Deficiency Expenses

Expenses

Net Commission

Underwriting result Investment Income Rental Income Other Income (provide details) General and administration expenses Profit/(Loss) before tax

Provision for Taxation Profit/(Loss) after tax

Profit and Loss Appropriation Account Balance at commencement of year Profit/Loss after tax for the year Prior Year Adjustments (provide details) Proposed Dividend/Remittance to Head Office Transfers to/(from) reserves (provide details) Other appropriations (provide details) Balance Unappropriated Profit/(Loss) at end of Year

The annexed notes form an integral part of these accounts.

Chairman (If any)

Director

Director

Principal Officer

Company Name: Financial Year ended 31 December ........... Statement of Cash Flows

FORM GC

Figures in '000 Current Year Prior Year

Operating Cash Flows a) Underwriting activities Premiums received Reinsurance premiums paid Claims paid Surrenders paid Reinsurance and other recoveries received Commissions paid Commissions received Other underwriting payments, if any Other underwriting receipts, if any Net cash flow from underwriting activities b) Other operating activities Income tax paid General management expenses paid Other operating payments Other operating receipts Loans advanced Loan repayments received Other payments on operating assets Other receipts in respect of operating assets Net cash flow from other operating activities Total cash flow from all operating activities Investment activities Profit/ Return received Dividends received Rentals received Payments for investments Proceeds from disposal of investments Fixed Capital Expenditure Proceeds from disposal of fixed assets Total cash flow from investing activities Financing activities Share capital received Remittance to/from Head office Loans received Loans repaid Dividends paid Financial charges paid Payments on finance leases Total cash flow from financing activities Net cash inflow/outflow from all activities Cash at the beginning of the year Cash at the end of the year

0 0

0 0

0 0

0 0

Reconciliation to Profit and Loss Account

Operating cash flows Depreciation expense Financial charges expense Profit/(loss) on disposal of fixed assets Increase/(decrease) in assets other than cash (Increase)/decrease in liabilities other than running finance Revaluation adjustment Other adjustments (please specify) Profit or loss after taxation (must agree to Profit and Loss Account (shareholders' fund only))

Definition of cash Please provide a definition of which items have been treated as cash for the purposes of this statement, and if different from Cash and Overdrafts as disclosed in the Balance Sheet, provide a reconciliation. Cash for the purposes of the Statement of Cash Flows consists of:

The annexed notes form an integral part of these accounts.

Chairman (If any)

Director

Director

Principal Officer

FORM GD Company Name: Financial Year ended 31 December ........... Statement of Premiums Current Year Net premium revenue Rs Prior Year Net premium revenue Rs Figures in '000

Class

Premiums written Rs

Unearned premium reserve Opening Closing Rs Rs

Premiums earned Rs 0 0 0 0 0 0 0 0

Reinsurance ceded Rs

Prepaid Reins Premium ceded ceded Rs Rs

Reinsurance expense Rs 0 0 0 0 0 0 0 0

Direct and facultative

1 Fire and Property Damage 2 Marine, Aviation and Transport 3 Motor Act 4 Liability 5 Workers' Compensation 6 Credit and Suretyship 7 Accident and Health 8 Miscellaneous Total 0 0 0

Treaty 9 Proportional (*) 10 Non-proportional (*) Total Grand Total 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Note: If the business underwritten outside Pakistan is more than 10% of the net premium income, then a separate statement on a similar format should be prepared in respect of that business. (*) Can be combined for the purpose of Published Financial Statements The annexed notes form an integral part of these accounts.

Chairman (If any)

Director

Director

Principal Officer

Company Name: Financial Year ended 31 December ...........

FORM GE

Figures in '000 Statement of Claims 1. Business underwritten inside Pakistan Class Claims paid Rs Direct and Facultative 1 Fire and Property Damage 2 Marine, Aviation and Transport 3 Motor Act 4 Liability 5 Workers' Compensation 6 Credit and Suretyship 7 Accident and Health 8 Miscellaneous Total Treaty 9 Proportional 10 Non-proportional Total Grand Total 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Outstanding claims Opening Closing Rs Rs 0 0 0 0 0 0 0 0 0 Claims expense Rs 0 0 0 0 0 0 0 0 0 Reinsurance Reinsurance Reinsurance and other and other recoveries in respect of and other recoveries outstanding claims recoveries received Opening Closing revenue Rs Rs Rs Rs 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Current Year Prior Year Net claims expense Rs 0 0 Net claims expense Rs

FORM GE 2. Business underwritten outside Pakistan Class Claims paid Rs Outstanding claims Opening Closing Rs Rs Claims expense Rs Reinsurance and other recoveries received Rs 0 0 0 0 0 0 0 0 0 Rs 0 0 0 0 0 0 0 0 Reinsurance and other recoveries in respect of outstanding claims Opening Closing Rs Rs Reinsurance and other recoveries revenue Rs 2001 Net claims expense Rs 2000 Net claims expense Rs

Direct and facultative

1 Fire and Property Damage 2 Marine, Aviation and Transport 3 Motor Act 4 Liability 5 Worker's Compensation 6 Credit and Surityship 7 Accident and Health 8 Miscellaneous Total Total

0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0

Treaty 9 Proportional 10 Non-proportional Total Grand Total 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

The annexed notes form an integral part of these accounts.

Chairman (If any)

Director

Director

Principal Officer

Company Name: Financial Year ended 31 December ........... Statement of Expenses 1. Business underwritten inside Pakistan Class Commissions paid or payable Rs a Opening Deferred commission Rs b Closing Deferred commission Rs c Net commission Other manUnderwriting expense agement expenses expense Rs Rs Rs d = a+b-c e f = d+e Refer note 5 Commissions from reinsurers Rs g refer note below

FORM GF

Figures in '000 Current Year Net underwriting expense Rs g = e-f Prior Year Net underwriting expense Rs

Direct and facultative

1 Fire and Property Damage 2 Marine, Aviation and Transport 3 Motor Act 4 Liability 5 Workers' Compensation 6 Credit and Suretyship 7 Accident and Health 8 Miscellaneous Total 0 0 0

Treaty 9 Proportional 10 Non-proportional Total Grand Total 0 0 0 0 0 0

Note: Commission from reinsurers is arrived at taking impact of opening and closing unearned commission.

The annexed notes form an integral part of these accounts.

Chairman (If any)

Director

Director

Principal Officer

Company Name: Financial Year ended 31 December ........... Statement of Expenses 2. Business underwritten outside Pakistan Class Commissions paid or payable Rs a Opening Deferred commission Rs b Closing Deferred commission Rs c Net commission Other manUnderwriting expense agement expenses expense Rs Rs Rs d = a+b-c e f = d+e Refer note 5 Commissions from reinsurers Rs g refer note below

FORM GF

Figures in '000 Current Year Net underwriting expense Rs g = e-f Prior Year Net underwriting expense Rs

Direct and facultative

1 Fire and Property Damage 2 Marine, Aviation and Transport 3 Motor Act 4 Liability 5 Workers' Compensation 6 Credit and Suretyship 7 Accident and Health 8 Miscellaneous Total 0 0 0

Treaty 9 Proportional 10 Non-proportional Total Grand Total 0 0 0 0 0 0

Note: Commission from reinsurers is arrived at taking impact of opening and closing unearned commission.

The annexed notes form an integral part of these accounts.

Chairman (If any)

Director

Director

Principal Officer

Company Name: Financial Year ended 31 December ........... Statement of Investment Income Current Year Rs Income from Trading Investments Gain/loss on trading (I.e. buying and selling difference) Dividend Income ( earned while holding the securities) Others, if any (Please specify)

FORM GG Figures in '000 Prior Year Rs

Income from Non-Trading Investments Held to Maturity or Available for sale (classify as appropriate) Return on Government Securities Return on Other Fixed Income Securities and Deposits Dividend Income Amortisation of discount/premium relative to par Others, if any (Please specify) Gain/Loss on Sale of Non-Trading Investments (classify as appropriate) Gain/Loss on Revaluation of Investments - Trading Investments - Available for sale

Provision for Impairment in Value of Investments Provision for Portfolio Held to Maturity Provision for Portfolio Available for Sale

Less: Investment Related Expenses

Net Investment Income

The annexed notes form an integral part of these accounts.

Chairman (If any)

Director

Director

Principal Officer

Company Name: Financial Year ended 31 December ........... Analysis of Claims Policy year basis / Accident year basis (delete as applicable) 1. Business underwritten inside Pakistan

FORM GH

Figures in '000 Class of Business Claims Paid Development year: 0 1 Rs Rs Claims Recoveries on claims Net Claims Recoveries on claims Net Claims Recoveries on claims Net Claims Recoveries on claims Net Claims Recoveries on claims Net Claims Recoveries on claims Net Claims Recoveries on claims Net Claims Recoveries on claims Net Claims Recoveries on claims Net Outstanding claims (notified) at end of year Development year: 0 1 2 3 Rs Rs Rs Rs 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

2 Rs Rs

3 Rs

Total 4 5 and above Rs Rs

Rs

4 5 and above Total Rs Rs 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

IBNR Rs

Total Rs 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

1 Fire and Property Damage

2 Marine, Aviation and Transport

3 Motor Act

4 Liability

5 Workers' Compensation

6 Credit and Suretyship

7 Accident and Health

8 Miscellaneous

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

Total

Treaty 9 Proportional Claims Recoveries on claims Net Claims Recoveries on claims Net Claims Recoveries on claims Net Claims Recoveries on claims Net 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

10 Non-proportional

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

Total

Grand Total

Company Name: Financial Year ended 31 December ........... Analysis of Claims

FORM GH

Numbers of claims in year: Rs 1 Fire and Property Damage Notified in year Paid in year Outstanding at end of year Notified in year Paid in year Outstanding at end of year Notified in year Paid in year Outstanding at end of year Notified in year Paid in year Outstanding at end of year Notified in year Paid in year Outstanding at end of year Notified in year Paid in year Outstanding at end of year Notified in year Paid in year Outstanding at end of year Notified in year Paid in year Outstanding at end of year Notified in year Paid in year Outstanding at end of year

0 Rs

1 Rs

2 Rs

3 Rs

4 5 and above Total Rs Rs 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

2 Marine, Aviation and Transport

3 Motor Act

4 Liability

5 Workers' Compensation

6 Credit and Suretyship

7 Accident and Health

8 Miscellaneous

Total

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

9 Proportional

Notified in year Paid in year Outstanding at end of year Notified in year Paid in year Outstanding at end of year

N/A N/A N/A

N/A N/A N/A

N/A N/A N/A

N/A N/A N/A

N/A N/A N/A

N/A N/A N/A

N/A N/A N/A 0 0 0

10 Non-proportional

Company Name: Financial Year ended 31 December ........... Analysis of Claims

FORM GH

2. Business underwritten outside Pakistan Class of Business Claims Paid Development year: 0 1 $ '000 $ '000 Claims Recoveries on claims Net Claims Recoveries on claims Net Claims Recoveries on claims Net Claims Recoveries on claims Net Claims Recoveries on claims Net Claims Recoveries on claims Net Claims Recoveries on claims Net Claims Recoveries on claims Net Claims Recoveries on claims Net Outstanding claims (notified) 0 1 $ '000 $ '000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

2 $ '000 $ '000

3 $ '000

Total 4 5 and above $ '000 $ '000

2 $ '000 $ '000

3 $ '000

4 5 and above Total $ '000 $ '000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

IBNR $ '000

Total $ '000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

1 Fire and Property Damage

2 Marine, Aviation and Transport

3 Motor Act

4 Liability

5 Workers' Compensation

6 Credit and Suretyship

7 Accident and Health

8 Miscellaneous

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

Total

Treaty 9 Proportional Claims Recoveries on claims Net Claims Recoveries on claims Net Claims Recoveries on claims Net Claims Recoveries on claims Net 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

10 Non-proportional

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

Total

Grand Total

Company Name: Financial Year ended 31 December ........... Analysis of Claims

FORM GH

Numbers of claims in year: $ '000 1 Fire and Property Damage Notified in year Paid in year Outstanding at end of year Notified in year Paid in year Outstanding at end of year Notified in year Paid in year Outstanding at end of year Notified in year Paid in year Outstanding at end of year Notified in year Paid in year Outstanding at end of year Notified in year Paid in year Outstanding at end of year Notified in year Paid in year Outstanding at end of year Notified in year Paid in year Outstanding at end of year Notified in year Paid in year Outstanding at end of year

0 $ '000

1 $ '000

2 $ '000

3 $ '000

4 5 and above Total $ '000 $ '000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

2 Marine, Aviation and Transport

3 Motor Act

4 Liability

5 Workers' Compensation

6 Credit and Suretyship

7 Accident and Health

8 Miscellaneous

Total

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

9 Proportional

Notified in year Paid in year Outstanding at end of year Notified in year Paid in year Outstanding at end of year

N/A N/A N/A

N/A N/A N/A

N/A N/A N/A

N/A N/A N/A

N/A N/A N/A

N/A N/A N/A

N/A N/A N/A 0 0 0

10 Non-proportional

The annexed notes form an integral part of these accounts.

Chairman (If any)

Director

Director

Principal Officer

Company Name: Financial Year ended 31 December ........... Statement of Estimated Exposures

FORM GI

1) Risk Exposures Maximum Gross Risk Exposure Rs million Direct and facultative 1 Fire and Property Damage 2 Marine, Aviation and Transport 3 Motor Act 4 Liability 5 Workers' Compensation 6 Credit and Suretyship 7 Accident and Health 8 Miscellaneous Treaty 9 Proportional 10 Non-proportional Maximum Gross Risk PML Rs million Highest Net Risk Retention Rs million Maximum Reinsurance Cover Rs million

2) Aggregate Event Exposures Provide below up to five aggregate events which constitute the maximum exposures of the company. Include: the highest gross aggregate exposure; the highest gross maximum probable loss; the highest net maximum probable loss.

Event (description)

Gross Aggregate Exposure Rs million

Gross Event PML Rs million

Net Event Retention Rs million

Maximum Reinsurance Cover Rs million

The annexed notes form an integral part of these accounts.

Chairman (If any)

Director

Director

Principal Officer

Company Name: Financial Year ended 31 December ........... Statement of Assets for Solvency Purposes

FORM GJ

Figures in Rs 000 Note Current Year Rs Prior Year Rs

ADMISSIBLE ASSETS
Cash and Bank Deposits Cash and other equivalent Current and other accounts Deposits maturing within 12 months Deposits maturing after 12 months

Loans (Secured or un-secured - classify as appropriate) To employees or agents Others Investments (Classification of investment are in notes) Government Securities Other Fixed Income Securities Listed Equities Unlisted Equities Others (describe)

Investment Property Deferred Taxation Preliminary and Deferred Expenses Current Assets - Others Premiums due but unpaid Amounts due from other insurers/ reinsurers Reinsurance recoveries due but unpaid Salvage recoveries accrued Premium and claim reserves retained by cedants Accrued investment income Reinsurance recoveries against outstanding claims Taxation - payments less provision Deferred commission expense Other deferred acquisition costs Prepayments Sundry receivables (provide details) Fixed Assets Tangible & Intangible Land and Buildings Furniture, Fixtures and Office Equipment Motor Vehicles Capital Work in Progress Intangibles (Please specify) TOTAL ADMISSIBLE ASSETS TOTAL INADMISSIBLE ASSETS TOTAL ASSETS

Chairman (If any)

Director

Director

Principal Officer

Company Name: Financial Year ended 31 December ........... Classified Summary of Assets in Pakistan

FORM GK

Figures in Rs 000 Current year Prior year Valuation Remarks Cost or book Market value Cost or book Market value basis value value CLASS OF ASSETS

TOTAL ASSETS

The annexed notes form an integral part of these accounts.

Chairman (if any)

Director

Director

Principal Officer

Principal Officer

Company Name: Financial Year ended 31 December ........... Note to the accounts

FORM GL

1.

STATUS AND NATURE OF BUSINESS Disclose the domicile and legal form of the company, its country of incorporation and the address of the registered office (or principal place of business, if different from the registered office); a description of the nature of its operations and its principal activities; the name of the parent enterprise and the ultimate parent enterprise of the group.

2.

BASIS OF PRESENTATION

3.

STATEMENT OF COMPLIANCE

4. 5.

BASIS OF MEASUREMENT SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, such as: Investment Property Investments Preliminary and Deferred Expenses

Revenue recognition - Premiums Claims Acquisition costs

Operating fixed assets Capital work-in-progress Property and equipment (owned and leased) Intangible Taxation Current Deferred Staff retirement benefits Defined benefit plan Defined contribution plan Foreign currencies Others (to be specified)

Management Expenses State policy of allocation to class of business Break up of Expenses Salaries, wages and benefits Rent, taxes, electricity etc Communications Printing and stationery Traveling and entertainment Depreciation Repairs and maintenance Legal and professional charges Advertisement and sales promotion Other expenses

INVESTMENTS Government Securities Other Fixed Income Securities Listed Equities Unlisted Equities Others (describe) TOTAL

AUDITORS REPORT TO THE MEMBERS OF A NON-LIFE INSURANCE COMPANY We have audited the annexed financial statements comprising of: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) balance sheet; profit and loss account; statement of changes in equity; cash flow statement; revenue account; statement of premium; statement of claims; statement of expenses; statement of investment income; statement of claims analysis; and statement of exposures

of . as at together with the notes forming part thereof, for the year then ended. It is the responsibility of the Companys Board of Directors/Management to establish and maintain a system of internal control, and prepare and present the financial statements in conformity with the International Accounting Standards as applicable in Pakistan and the requirements of the Insurance Ordinance, 2000 (XXXIX of 2000) and the Companies Ordinance, 1984 (XLVII of 1984). Our responsibility is to express an opinion on these statements based on our audit. We conducted our audit in accordance with the International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting policies used and significant estimates made by management, as well as, evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion ----(a) (b) proper books of accounts have been kept by the Company as required by the Insurance Ordinance, 2000; the financial statements together with the notes thereon have been drawn up in conformity with the Insurance Ordinance, 2000 and the Companies Ordinance,1984, and accurately reflect the books and records of the Company; The financial statements together with the notes thereon present fairly, in all material respects, the state of the Companys affairs as at _________________ in accordance with International Accounting Standards as applicable in Pakistan, and the information required to be disclosed by the Insurance Ordinance, 2000 and the Companies Ordinance, 1984; and Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), was deducted by the company and deposited in the Central Zakat Fund established under Section7 of that Ordinance.

(c)

(d)

Date .. Place

Signature [Name(s) of Auditors]

NOTES
1. Where no Zakat is deductible, substitute no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980. Where any of the matter referred to in the Auditors Report is answered in the negative or with a qualification, the report shall state the reason for such answers along with the factual position to the best of the auditors information.

2.

Securities and Exchange Commission of Pakistan

Islamabad, the 5th March 2009

S.R.O. 224(I)/2009.--- . In exercise of powers conferred by sub-section (1) of section 167 of the Insurance Ordinance (XXXIX of 2000), the following amendments to the Insurance Rules, 2002 are hereby published by Federal Government for information of all persons likely to be affected and notice is hereby given that objections and suggestions, if any, received to the Securities and Exchange Commission of Pakistan within the thirty days of this notification will be taken into consideration.

In the Insurance Rules, 2002:

(1)

in rule 16,-

(a)

in sub-rule (1),-

(i)

after clause (a) the following new clauses shall be inserted, namely:-

(aa) Fire and property (including loss of profit and business interruption in consequence of fire and property damage).

(ab)

Engineering (material damage) business.

(ac)

Engineering business (including loss of profit and advance loss of profit in consequence of engineering (material damage) insurance). 1

(ii)

after clause (b) the following new clauses shall be inserted, namely:-

(ba) Marine cargo business.

(bb)

Marine hull business.

(bc)

Aviation hull business.

(iii)

after clause (c) the following new clause shall be inserted, namely:-

(ca) Motor business (including own-damage and motor third party compulsory).

(b)

in sub-rule (2), after the word class the words or the classes shall be inserted;

(2)

in rule 17,-

(a)

in sub-rule (1),-

(i)

in clause (a),-

(I)

for the words one substituted;

million rupees the colon shall be

(II)

after the colon inserted as aforesaid the following new subclauses shall be inserted, namely:-

(i)

for up to two classes of insurance surveyors one million rupees; and

(ii)

for more than two classes of insurance surveyors two million rupees;

(ii)

in clause (b), for the words be one million rupees the words for a licence of up to two classes of insurance surveyors, be one million rupees and for licence of more than two classes of insurance surveyors be two million rupees shall be substituted;

(iii)

in clause (c),-

(I)

for the comma and the word, , there the words the Surveyors and Adjusters Association of Pakistan shall be substituted and word no shall be omitted; and

(II)

for the word no, the word the shall be substituted;

(iv)

in clause (d),-

(I)

existing sub-clause (i) shall be substituted with the following, namely:-

(i)

the Managing Director / CEO shall be registered to act as an authorized surveying officer for at least one of the classes of insurance surveyors in which a body corporate acts or proposes to act.; and

(II)

after the amended sub-clause (i) as aforesaid the following new sub-clause shall be inserted, namely:-

(ia)

for the remaining class or classes of insurance surveyors, in which a body corporate acts or proposes to act, there shall be at least one officer or director who

is registered in his own capacity to act as an authorized surveying officer;

(b)

sub-rule (2) shall be omitted;

(3)

rule 18 shall be omitted;

(4)

in rule 19,-

(a)

in sub-rule (1), the existing clause (vi) shall be substituted with the following,

namely:-

(vi) the names of all officers or directors (including the Managing Director/CEO) who must hold certificate of registration to act as an authorized surveying officer for at least one of the classes of insurance surveying;; and

(b)

in sub-rule (2),-

(i)

clause (a) shall be omitted;

(ii)

in clause (b), sub-clause (vi) shall be substituted with the following, namely:(vi) the names of all officers or directors (including the Managing Director/CEO) who must hold certificate of registration to act as an authorized surveying officer for at least one of the classes of insurance surveying;

(iii)

in clause (c),-

(I)

in sub-clause (vi) for the words licensed as an insurance surveyor the words registered to act as an authorized surveying officer shall be substituted; and

(II)

in sub-clause (viii) after the word of occurring for the first time the word insurance shall be inserted.

(c)

in sub-rule (3), the existing clause (c) shall be substituted with the following, namely:-

(c) the applicant (including MD/CEO, any of its officers or directors) is not appointed as an insurance agent of an insurance company or takaful operator, or licenced to act as an insurance broker or engaged in any capacity for development, introduction or promotion of insurance or takaful business;;

(d)

in sub-rule (4), clause (a) shall be omitted;

(e)

in sub-rule (5),-

(I)

for the words Federal Government the word Commission shall be substituted; and

(II)

clause (a) shall be omitted.

(f)

the sub-rule (6) shall be substituted with the following, namely:-

(6)

An application: (i) for grant of a licence for any class of insurance surveyors shall be accompanied by a fee of ten thousand rupees per class of insurance surveyor, which shall be refunded if the licence is not granted; and

(ii)

for renewal of a licence for any class of insurance surveyors shall be accompanied by a fee of seven thousand rupees per 5

class, which shall be refunded if the renewal of the licence is not granted;

(5)

in rule 20,-

(a)

in sub-rule (1),-

(I)

in clause (a) after the word university the words or engineering diploma from a recognized board, institution or body shall be inserted;

(II)

for the existing clause (b) the following shall be substituted, namely,-

(b)

where the applicant is a fresh candidate, he must posses a diploma certificate (Level A) for insurance surveyors from the Pakistan Insurance Institute or hold similar qualification from a recognized university, board, institution or body;

(ba)

for Motor, Marine Cargo, Workers Compensation, and Accident and health business, a minimum of three years practical experience in the respective class of insurance surveyors, and for any other class, five years of practical experience in the respective class of insurance surveyors;

(bb)

notwithstanding anything contained in clause (a), (b) or (ba), a candidate who possesses a (Level B) diploma certificate in a particular class of insurance surveyor from the Pakistan Insurance Institute or similar qualification from an

internationally recognized institute or body may be given a two years relaxation in the required practical experience of insurance survey in the concerned class of insurance surveyor for which fresh registration is sought;

(III)

in clause (c), in sub-clause (vii) for the words company may be described as that companys agent or an employee of an insurance company carrying on business in Pakistan the words and bracket or takaful company may be described as that companys agent) or engaged in any capacity for development, introduction or promotion of insurance or takaful business or an employee of an insurance company or takaful operator carrying on business in Pakistan shall be substituted;

(b)

sub-rule (2) shall be omitted; and

(c)

sub-rule (3) shall be omitted;

(6)

in rule 21,-

(a)

in sub-rule (1), in clause (vi), after the word employer, the parenthesis and words (i.e. insurance surveyor) shall be inserted;

(b)

in sub-rule (2),-

(I)

in clause (vi), after the word employer, the parenthesis and words (i.e. insurance surveyor) shall be inserted;

(II)

in clause (vii) for the full stop at the end a semicolon and the word and shall be substituted and thereafter the following clause shall be inserted, namely:-

(viii) evidence in original or certified copy form of compliance with prescribed qualifications.

(c)

in sub-rule (3),-

(I)

in clause (c), after the words insurance occurring for the first time the words or takaful shall be inserted; and 7

(II)

in clause (d) for the words is not an employee of an insurance company carrying on business in Pakistan the words is neither an employee of an insurance or takaful company nor engaged in any capacity for development, introduction or promotion of insurance or takaful business in Pakistan, shall be substituted;

(d)

after sub-rule amended as aforesaid a new sub-rule (3a) shall be inserted, namely:-

(3a) Renewal of registration to act as an authorized surveying officer, for the respective classes of insurance surveying shall be subject to the following qualifications and practical experience;

CLASS OF INSURANCE SURVEYOR

EDUCATIONAL QUALIFICATION AND EXPERIENCE

(a)

Fire & property damage business

(i) Where the applicant was issued a licence of an insurance surveyor or included surveyors surveyor repealed in of the a list of insurance insurance under 1938, the and

licensed

firm/company Insurance Act

possesses at least Secondary School Certificate from a recognized board, 12 years experience of insurance surveying in this class (as at 18 August 2005). (ii) Where the applicant possesses Bachelors Degree or Engineering

Diploma from a recognized university or board/institution/body, respectively, 5

years experience of insurance surveying in this class.

(aa)

Fire & property business (including loss of profit and business interruption in consequence of fire and property damage)

Where Bachelors

the

applicant or

possesses Engineering

Degree

Diploma from a recognized university or board/institution/body, respectively, 5 years experience of insurance surveying in this class.

(ab)

Engineering (material damage) business

Where Bachelors

the

applicant or

possesses Engineering

Degree

Diploma from a recognized university or board/institution/body, respectively, 5 years experience of insurance surveying in this class.

(ac)

Engineering business (including loss of profit and advanced loss of profits in consequence of engineering material damage)

Where Bachelors

the

applicant or

possesses Engineering

Degree

Diploma from a recognized university or board/institution/body, respectively, 5 years experience of insurance surveying in this class.

(b)

Marine, aviation and transport business

Where Bachelors

the

applicant or

possesses Engineering

Degree

Diploma from a recognized university or

board/institution/body, respectively, 5 years experience of insurance surveying in this class.

(ba)

Marine cargo business

(i) Where the applicant was issued a licence of an insurance surveyor or included surveyors surveyor repealed in of the a list of insurance insurance under 1938, the and

licensed

firm/company Insurance Act

possesses at least Secondary School Certificate from a recognized board, 10 years experience of insurance surveying in this class (as at 18 August 2005). (ii) Where the applicant possesses Bachelors Degree or Engineering

Diploma from a recognized university or board/institution/body, respectively, 3 years experience of insurance surveying in this class.

(bb)

Marine hull business

Where Bachelors

the

applicant or

possesses Engineering

Degree

Diploma from a recognized university or board/institution/body, respectively, 5 years experience of insurance surveying in this class.

(bc)

Aviation hull business

Where Bachelors

the

applicant or

possesses Engineering

Degree

Diploma from a recognized university or board/institution/body, respectively, 5 years experience of insurance surveying

10

in this class.

(c)

Motor third party compulsory business

(i) Where the applicant was issued a licence of an insurance surveyor or included surveyors surveyor repealed possesses in of the a list of insurance insurance under 1938, the and

licensed

firm/company Insurance at least Act and

possesses

Secondary School Certificate from a recognized board, 7 years experience of insurance surveying in this class (as at 18 August 2005). (ii) Where the applicant possesses Bachelors Degree or Engineering

Diploma from a recognized university or board/institution/body, respectively, 3 years experience of insurance surveying in this class.

(ca)

Motor business (including own -

(i) Where the applicant was issued a licence of an insurance surveyor or in of the a list of insurance insurance under 1938, the and

damage and motor included third party compulsory) surveyors surveyor repealed possesses

licensed

firm/company Insurance at least Act and

possesses

Secondary School Certificate from a recognized board, 7 years experience of insurance surveying in this class (as at 18 August 2005). (ii) Where the applicant possesses Bachelors Degree or Engineering

11

Diploma from a recognized university or board/institution/body, respectively, 3 years experience of insurance surveying in this class.

(d)

Liability business

Where Bachelors

the

applicant or

possesses Engineering

Degree

Diploma from a recognized university or board/institution/body, respectively, 5 years experience of insurance surveying in this class.

(e)

Workers compensation business

(i) Where the applicant was issued a licence of an insurance surveyor or included surveyors surveyor repealed possesses in of the a list of insurance insurance under 1938, the and

licensed

firm/company Insurance at least Act and

possesses

Secondary School Certificate from a recognized board, 7 years experience of insurance surveying in this class (as at 18 August 2005). (ii) Where the applicant possesses Bachelors Degree or Engineering

Diploma from a recognized university or board/institution/body, respectively, 3 years experience of insurance surveying in this class.

(f)

Credit and suretyship business

Where Bachelors

the

applicant or

possesses Engineering

Degree

Diploma from a recognized university or

12

board/institution/body, respectively, 5 years experience of insurance surveying in this class.

(g)

Accident and health business

Where the applicant possesses Bachelor Degree or Engineering Diploma from a recognized university or

board/institution/body, respectively, 3 years experience of insurance surveying in this class.

(h)

Agriculture insurance including crop insurance

Where Bachelors

the

applicant or

possesses Engineering

Degree

Diploma from a recognized university or board/institution/body, respectively, 5 years experience of insurance surveyor in this class.

(i)

Miscellaneous business

(i) Where the applicant was issued a licence of an insurance surveyor or included surveyors surveyor repealed possesses in of the a list of insurance insurance under 1938, the and

licensed

firm/company Insurance at least Act and

possesses

Secondary School Certificate from a recognized board, 10 years experience of insurance surveying in this class (as at 18 August 2005). (ii) Where the applicant possesses Bachelors Degree or Engineering

Diploma from a recognized university or board/institution/body, respectively, 5

13

years experience of insurance surveying in this class.

(e)

in sub-rule (5), for the words Federal Government the word Commission shall be substituted;

(f)

the existing sub-rule (6) shall be substituted with the following, namely:-

(6) An application:

i.

for registration as authorized surveying officer shall be accompanied by a fee of five thousand rupees per class of insurance surveyor which shall be refunded if the relevant certificate is not granted; and

ii.

for renewal of registration as authorized surveying officer shall be accompanied by a fee of three thousand rupees per class of insurance suveryor which shall be refunded if the relevant renewal certificate is not granted.

(g)

after the sub-rule (6) amended as aforesaid new sub-rules shall be inserted, namely:-

(7)

The Commission, if it is satisfied that the applicant seeking fresh registration or renewal to act as an authorized surveying officer has fulfilled the conditions mentioned in the Ordinance or these rules may grant or renew registration, as the case may be, to act as an authorized surveying officer.

(8)

The Commission may, at any time, in writing require an applicant whose application is pending for registration or renewal of registration to act as an authorized surveying officer to furnish, within the time specified therein, any statement, information or documents

14

relating to the registration or renewal or may require the applicant to appear in person.; and

(7)

in rule 22,-

(a)

in sub-rule (4), for the words ninety day the words thirty days, after receipt of all related information/documents shall be substituted; and

(b)

in sub-Rule (5), for the words Federal Government wherever appearing, the word Commission shall be substituted.

F.No . ID(Adviser)/10/2009

sd/(Abdul Rehman Qureshi) Advisor/Secretary

15

The Gazette of Pakistan Extraordinary PART II Notification SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN NOTIFICATION Islamabad, April 01, 2003 S.R.O. 310(I)/2003. In exercise of the powers conferred by section 282 B of the Companies Ordinance, 1984 (XLVII of 1984), the Federal Government is pleased to make the following rules, namely:THE NON-BANKING FINANCE COMPANIES (ESTABLISHMENT AND REGULATION) RULES, 2003 CHAPTER I General 1. Short title and commencement. (1) [These rules may be called the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003]1. (2) They shall come into force at once.

2. Definitions. (1) In these Rules, unless there is anything repugnant in the subject or context, (iii) asset management services mean the services provided for management of collective investment schemes; (iv) assets mean properties of all kinds tangible or intangible, including shares, units, certificates, securities, deposits, right and bonus shares, cash, bank balances, profits, dividends, fees, commissions, all receivables, claims, derivatives contract, licences, privileges, accrued or accruing or contingent; (v) associated companies means associated companies and associated undertakings as defined in sub-section (2) of section 2 of the Ordinance; (vi) brokerage business means the services being provided by a broker registered under the Brokers and Agents Registration Rules, 2001; (vii) central depository company means central depository as defined under the Securities and Exchange Ordinance, 1969 (XVII of 1969);
1

Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003, amended on November 21, 2007 vide Notification No. S.R.O. 1131 (I)/2007.

(ix)

closed-end fund means an investment company or a closed-end scheme;

(x) closed-end scheme means a scheme constituted by way of trust to raise funds through issue of certificates to the public for investing in securities including money market instruments for a definite or indefinite period but which does not continuously offer certificates entitling the holder of such certificates, to receive, on demand, his proportionate share of the net assets of the closed-end scheme; (xi) close relative includes spouse, lineal ascendants and descendants and brothers and sisters; (xii) collective investment scheme means a closed-end fund and an open-end scheme;

(xiii) Commission" means the Securities and Exchange Commission of Pakistan established under the Securities and Exchange Commission of Pakistan Act, 1997(XLII of 1997); (xiv) company means a company as defined under the Companies Ordinance, l984 (XLVII of l984); (xv) connected person" in relation to an NBFC or a collective investment scheme, means,(a) any person or trust beneficially owning, directly or indirectly, ten percent or more of capital of the NBFC or the collective investment scheme; any person able to exercise, directly or indirectly, ten percent or more of the total voting power in that NBFC or the collective investment scheme; a collective investment scheme being managed by an NBFC; the NBFC managing a collective investment scheme; a trustee or custodian of the collective investment scheme; any person or trust controlled by a person who or which meets the descriptions given in sub-clause (a) to (e); any member of the group of which that person, or trust forms part; and any director or officer of that NBFC or the investment company being managed by that NBFC or of any of their connected persons as specified in sub-clauses (a) to (g);

(b)

(c) (d) (e) (f)

(g) (h)

(xvi) constitutive documents means the trust deed, offering documents and other principal documents governing the formation of a closed-end scheme or an open-end scheme including all related material agreements; (xvii) custodian includes a bank licensed under the Banking Companies Ordinance, 1962 (LVII of 1962) or a trust company which is a subsidiary of such bank or a central depository company approved by the Commission or an NBFC carrying out investment finance services

provided it has been approved by the Commission to act as custodian or such other company as may be approved by the Commission to act as custodian; (xviia) discounting services means the services relating to the discounting of financial instruments; (xix) equity includes paid up share capital, reserves, subordinated loans and unappropriated profits (minus accumulated losses) excluding deferred tax reserves, Surplus on Revaluation of Fixed Assets Account as described in section 235 of the Ordinance, treasury stocks and redeemable preference shares: Explanation.- For the purpose of this clause the expression subordinated loans means loans given or arranged by the sponsors, free of cost, to meet any short fall in the minimum equity requirement specified under these rules; (xx) facility includes a financing under a system which is based on participation in profit and loss, mark-up or mark-down in price, hire-purchase, lease, rent-sharing, bills of exchange, promissory notes or other instruments with or without buy-back arrangement by a seller, participation term certificate, musharika or modaraba certificate, term finance certificate or any other mode, guarantee, indemnity, letter of credit and any other obligation, whether fund based or non-fund based; (xxi) "form" means the forms annexed to the rules;

(xxia) forms of business means any of the forms of business specified in clause (a) of section 282A of the Ordinance; (xxib) group means persons, whether natural or legal, if one of them or his close relatives, in case of a natural person, or, its subsidiary or associated company, if it is a legal person, have control or hold substantial ownership interest or have power to exercise significant influence over the other. For the purpose of this clause the expression(a) subsidiary shall have the same meaning as defined in sub-section (2) of section 3 of the Ordinance; (b) control shall have the same meaning as defined in section 2 of the Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Ordinance, 2002 (CIII of 2002); (c) substantial ownership means beneficial shareholding of ten percent by a person or by close relative; and (d)significant influence refers to the management control of the company or the ability to participate in financial and operating policies, either exercised by representation on the Board of Directors, through partnership or by statute or by agreement in the policy making process; (xxiii) housing finance services means the loan provided to individuals for the purchase of residential house or apartment or land including the facilities availed for the purpose of making improvements in house or apartment or land;

(xxv) investment advisory services means the services provided for, managing discretionary or non-discretionary portfolios for both individual and institutional clients and include the business of advising others as to the value of securities or as to the advisability of investing in, purchasing or selling of securities, for remuneration; (xxvi) investment company means a company registered with the Commission under the Ordinance in accordance with such criteria as may be specified by the Commission by notification in the official Gazette; (xxviii) investment finance services include money market activities, capital market activities, project finance activities, corporate finance services and general services as specified by the Commission by notification in the official Gazette; (xxix) leasing includes financial services provided on operating lease or finance lease basis , in accordance with (in accordance with applicable International Accounting Standards) or any other admissible mode determined by the Commission from time to time; (xxxii) major shareholder means a person who, individually or in concert with his family or as part of a group, holds ten percent or more shares having voting rights of the paid-up capital of the company; (xxxiii) NBFC means a non-banking finance company as defined in clause (a) of section 282A of the Ordinance; (xxxiv) net assets, in relation to a collective investment scheme, means the excess of assets over liabilities of the collective investment scheme, such excess being computed in the manner specified by the Commission by notification in the official Gazette; (xxxvii) open-end scheme means a scheme constituted by way of a trust deed that continuously offers for sale its units as specified in the constitutive document that entitle the holder of such units on demand to receive his proportionate share of the net assets of the scheme less any applicable charges; (xxxviii)Ordinance means the Companies Ordinance, l984 (XLVII of l984); (xxxvix)"person" includes an individual, a Hindu undivided family, a firm, an association or body of individuals whether incorporated or not, a company and every other legal person; (xxxixa) promoter or sponsor means a person who has made an application to the Commission to form an NBFC under rule 4 and has contributed initial capital in the proposed company or a person who replaces him; (xl) records mean all documentary and electronic materials created, generated, sent, communicated, received or stored, regardless of physical form or characteristics; (xli) regulations means the regulations made by the Commission in exercise of its powers under Part VIIIA of the Ordinance; (xlii) Schedule means the schedule to these rules;

(xliv) trust means a trust established by a deed under the provisions of the Trusts Act, 1882 (II of 1882); (xlv) trustee includes a bank licensed under the Banking Companies Ordinance, 1962 (LVII of 1962) or a trust company which is a subsidiary of such a bank or a central depository company approved by the Commission or a NBFC carrying out investment finance services provided it has been approved by the Commission to act as trustee or such other company or trust as may be approved by the Commission to act as trustee; (2) Words and expressions used but not defined in these rules shall have the same meaning as assigned to them in the Ordinance or the Securities and Exchange Ordinance, 1969 (XVII of 1969). 3. Eligibility criteria for the establishment of a NBFC. A NBFC may be established, if each of its promoters, proposed directors, chief executive and chairman of the Board of Directors fulfills the terms and conditions mentioned in the fit and proper criteria as may be specified by the Commission by notification in the official Gazette and complies with the requirements of the Ordinance, these rules and the regulations made under the Ordinance. 4. Permission to form a NBFC (1) A person desirous of forming a NBFC shall make an application to the Commission as set out in Form-1 providing information, as given in Annexure thereto, along with all the relevant documents and receipt evidencing the payment of non-refundable processing fee as may be specified by the Commission by notification in the official Gazette. (2) The Commission, if it is satisfied that the person seeking permission to form the NBFC has fulfilled the criteria in terms of rule 3 and the regulations, may permit by an order in writing such person to establish a NBFC. (3) The permission granted under sub-rule (2) shall be valid for a period of six months unless extended for a maximum period of three months under special circumstances, on the application of the promoters made before the expiry of said six months. During the validity of this permission, the promoters of the NBFC shall get the NBFC incorporated as a public limited company or any other form of company as may be specified by the Commission by notification in the official Gazette. 5. Conditions for grant of licence.- (1) An NBFC shall make separate applications to the Commission for grant of licence for carrying out different forms of business. The said application shall be submitted to the Commission in Form-II along with a non-refundable processing fee as may be specified by the Commission by notification in the official Gazette for each licence. (2) An NBFC seeking licence for undertaking investment advisory or asset management services or both shall not be eligible for seeking licence for any other form of business. Explanation.- (i) For the purpose of sub-rule (2), the Commission may issue a licence for asset management services to manage only closed-end funds.

(ii) All existing NBFCs licensed to provide investment advisory services that are managing closed-end funds shall, within six months of the coming into effect of this provision, apply for an asset management services licence to manage closed-end funds. (3) An NBFC licenced to carry out asset management services shall be eligible, subject to the criteria as may be specified by notification in the official Gazette, to undertake pension fund scheme business as specified by the Federal Government to be a form of business in terms of section 282A of the Ordinance. (4) An NBFC seeking licence for undertaking investment finance services or leasing or housing finance services or discounting services or all of the said forms of business shall not be eligible for seeking licence for any other form of business Explanation.- For the purpose of sub-rule (3), licence granted for investment finance services shall be valid for undertaking discounting services, and separate licence for undertaking discounting services shall not be required. (5) All existing NBFCs shall comply with the requirements set out in sub-rule (2) and (3) within a period of one year from the date of coming into effect of this provision or any other time as may be specified by the Commission by notification in the official Gazette. (6) The Commission, after making necessary inquiries and after obtaining such further information, as it may consider necessary, and if it is satisfied that the company has fulfilled the criteria in terms of rule 3 and the regulations, and that the promoters thereof are persons of means and integrity having knowledge of matters which the company may have to deal with, in respect of the forms of businesses for which the licence is being sought, shall grant licence to such company in Form-III for one or more of the forms of businesses subject to compliance of the following conditions, namely:(a) the company is incorporated as a public limited company or such other form of company as may be specified by the Commission by notification in the official Gazette; (b) the company is not part of a group of companies already holding a licence, under these rules, for the same form of business ; (c) the company has minimum equity as may be specified by the Commission by notification in the official Gazette, in respect of each form of business; (d) the company has allotted at least twenty five percent of the paid-up share capital to the promoters; (e) the companys promoters or majority shareholders and directors have deposited their shares with Central Depository Company of Pakistan Limited in an account marked as blocked and such shares shall not be sold or transferred without prior approval of the Commission and shall be kept unencumbered. 2
2

The text in case of physical shares lodged with the Commission, such shares shall be in a jumbo lot duly stamped as Not to be sold or transferred without prior approval of the Commission and shall be kept unencumbered has been deleted vide SRO 271(I)/2010 dated April 21, 2010.

(f) the companys promoters or majority shareholders and directors have given an undertaking that they shall not enter into any agreement for sale or transfer of their shares in any manner without prior approval of the Commission; (g) the company appoints its chief executive who does not hold such office in any other company except for an investment company being managed by the said company, provided that prior approval of the Commission has been obtained in this regard; (h) the company has given an undertaking that no change in the Memorandum of Association, other than increase in the authorized share capital, shall be made without prior approval of the Commission; (i) the company has given an undertaking that the conditions as set out in these rules, the regulations or prudential regulations or any direction given by the Commission shall be duly complied with; and (j) the company has furnished an undertaking that within ninety days of the grant of certificate of registration it shall furnish evidence to the satisfaction of the Commission that the personnel employed by it for executive positions, research or other related functions possess sufficient educational qualifications and professional experience to undertake the proposed form of business of the NBFC. (7) Without prejudice to the conditions prescribed under sub-rule (6) above, the Commission may, while granting licence, impose such additional conditions, as it may deem necessary. (8) The licence granted to the NBFC shall be valid for three3 from the date of its issuance and shall be renewable upon expiry of the said period by making an application at least one month prior to the expiry as set out in Form IV along with payment of a fee as specified by the Commission by notification in the official Gazette. (9) The Commission may, after making such inquiry and after obtaining such further information, as it may consider necessary, renew the licence of such NBFC, for three4 year in Form V on such conditions, as it may deem necessary: Provided that till such time that the licence is renewed, the existing licence shall be deemed valid for the purposes of these rules and the regulations unless the company fails to apply as specified in sub-rule (8) and fulfill all the requirements to the satisfaction of the Commission for the grant of a licence: Provided further that if the company fails to apply within the stipulated time period and fulfills all the requirements to the satisfaction of the Commission its licence shall stand cancelled and the Commission may initiate further proceedings to give effect to the cancellation. (10) Every company in existence which is engaged in one or more forms of businesses shall apply in writing to the Commission, as provided by sub-section (3) of section 282C of the
3 4

Substituted for one vide S.R.O. 272 (I)/2010 dated April 21,2010 Substituted for one vide S.R.O. 272 (I)/2010 dated April 21,2010

Ordinance, for grant of a licence along with a non-refundable processing fee as specified by the Commission: Provided that till such time that a new licence is issued, the existing licences or registrations shall be deemed to be valid for the purposes of these rules unless the company fails to apply for licence as specified in sub-rule (8) or the Commission declines to grant such licence for reasons to be recorded in writing.. 6. Commencement of operations by NBFC. (1) An NBFC shall commence or continue its business and operations only after it has complied with the requirements of these rules and the regulations and has been issued a licence to carry out a form of business. (2) Without prejudice to the terms and conditions prescribed in rule 7, the Commission may, subsequent to the grant of licence to the NBFC, impose any other condition, as it may deem necessary in the public interest. (3) If an NBFC fails to commence business within one year of the issuance of licence, the licence shall be deemed to be cancelled or otherwise as specified by the Commission by notification in the official Gazette. 7. Conditions applicable to a NBFC.(1) A NBFC shall,

(a) maintain such books of accounts and other records, as prescribed under the Ordinance, as shall depict a true and fair view of its state of affairs, including,__ (i) journals, cash books and other records of original entry forming the basis of entry in any ledger; (ii) ledgers (or other comparable record) reflecting assets, liabilities, income and expenses along with all supporting documents or records; (iii) (iv) ledgers (or other comparable record) showing securities in the portfolio; record of transactions with banks;

(v) record of the meetings of the board of directors and all relevant committees including the audit committee, credit committee and investment committee; and (vi) original record of all reports, analysis and memoranda containing investment advice distributed; (b) maintain such books of accounts and other records, as prescribed under the Ordinance, to depict a true and fair view of its state of affairs for a period of not less than ten years; (ba) ensure that its statutory auditors are from the approved list of auditors circulated by the Commission; (c) appoint an individual, having minimum three years experience, as its financial or chief accounting officer who is-

(i) (ii) (iii) (iv)

a chartered accountant; or a cost and management accountant; or a member of a recognized foreign accountancy organization; or a person having masters degree in commerce or business administration with specialization in finance;

(ca) (i)

appoint; a person having minimum three years experience as internal auditor who is(a) a chartered accountant; or (b) a cost and management accountant; or a certified internal auditor; or (c) a certified information system auditor; or (d) a member of a recognized foreign accountancy organization; or (e) an individual having masters degree in commerce or business administration with specialization in finance; or a chartered accountancy firm having satisfactory Quality Control Review (QCR) and not being the statutory auditors to whom this function is outsourced;

(ii)

(cb) appoint a person as compliance officer to ensure reporting to the Commission of status of compliance with the existing regulatory framework by the NBFC; (cc) appoint such executives who shall fulfill the terms and conditions mentioned in the fit and proper criteria specified by the Commission by notification in the official Gazette; (cd) (i) appointat least one third of its directors who shall be independent directors; and Provided that at least two of its directors, excluding the chief executive officer, shall have relevant experience of at least five years at a senior management level in the financial sector; Explanation.- For the purpose of this sub-clause, the expression "independent director" means a director who is not connected with the company or its promoters or directors on the basis of family relationship and who does not have any other relationship, whether pecuniary or otherwise, with the company, its associated companies, directors, executives or related parties. The test of independence principally emanates from the fact whether such person can be reasonably perceived as being able to exercise independent business judgment without being subservient to any apparent form of interference.

Provided further that the Commission shall be the final authority to determine the status of a director as independent or otherwise;

(d)

prepare its accounts in conformity with the International Accounting Standards notified under sub-section (3) of section 234 of the Ordinance and technical releases issued by Institute of Chartered Accountants of Pakistan from time to time; furnish to the Commission within one month of the close of first and third quarter and within two months of the close of second quarter of the year of account of its financial year, a balance sheet along with an income statement, cash flow statement and the statement of changes in equity for the respective quarters, whether audited or otherwise; furnish a copy of its annual report together with copies of the balance sheet, income statement, cash flow statement and statement of changes in equity along with the auditors report to the Commission or any other person as required by the Commission within three months of the close of the accounting period; separately disclose in relevant notes to its quarterly and annual accounts all those facilities and exposures whose carrying value exceeds twenty percent of its equity; follow directions issued to protect NBFCs against their involvement in money laundering activities and other unlawful trades; obtain credit rating and, management quality rating, wherever applicable as and when it becomes eligible for rating as per the rating criteria of a rating agency registered with the Commission, and such rating shall be updated at least once every financial year:

(da)

(db)

(e)

(g)

(h)

Provided that the NBFC shall within one year of the decrease in its rating from the grade specified by the Commission by notification in the official Gazette, obtain a fresh rating and during the period that its rating is below the grade so specified, the NBFC may be allowed by the Commission to continue its operations on such conditions as are deemed appropriate by the Commission; (i) publish the credit rating and management quality rating, as the case may be, in its annual report and quarterly reports, annual and quarterly reports of the collective investment schemes managed by the NBFC, if applicable, and any advertisement and brochures in relation to promotion of its business; and acquire and maintain membership of the relevant association and follow the code of conduct specified by the said association approved by the Commission.;

(j)

(2)

A NBFC shall not, (a) appoint as directors persons who hold such office in any other NBFC licensed for the same form of business.

Provided that this clause shall not apply to the nominees of the Federal or Provincial Governments on the board of any NBFC or, any exception specified by the Commission;

(aa)

appoint or change its chief executive or any of its directors subject to fulfillment of the fit and proper criteria and prior approval of the Commission provided that the Commission may refuse appointment of any person without assigning any reason;

Explanation.- This clause shall not apply to a director nominated by the Federal Government or Provincial Governments; (b) purchase anything from, or sell anything to any director, officer, employee of the NBFC or to a person who either individually or in concert with close relatives beneficially owns ten percent or more either of the equity or other securities with voting rights, if any, issued by such NBFC;

Provided that this restriction shall not apply to such NBFCs that have a policy to this effect duly approved by their board of directors: Provided further that in case of any sale and purchase to the directors the prior approval in writing of the board, excluding the participation of the beneficiary directors, is required; (c) sell or transfer ownership of shares in subsidiary or associated company, merge with, acquire or takeover any other company unless it has obtained prior approval of the Commission in writing to such sale or transfer or scheme of merger, acquisition or takeover; make investment in its subsidiary except out of its surplus equity (i.e. over and above the specified minimum equity requirement for the licences held by such NBFC);

(ca)

(e) enter into transactions with any broker which exceed ten percent of the total brokerage expense of the NBFC in any one accounting year Provided that the NBFC shall not have a common director or officer or employee with the broker; (f) remove any of its records or documents relating to its business from Pakistan to a place outside Pakistan without the prior permission of the Commission;

(h) make an investment in unquoted shares of any company in excess of twenty percent of its equity. Unquoted investment shall be approved in a board meeting after carefully analyzing the merits and financial impact of the investment and recording the decision in detail in minutes of the meeting and such decisions shall be communicated to the Commission within fourteen days of the board meeting along with copy of the minutes; Provided further that all existing NBFCs, who have investment in unquoted shares exceeding twenty percent of their equity , shall bring such

investments down to twenty percent within a period of six months from the date of this provision taking effect. Provided also that an investment by an NBFC out of its surplus equity (i.e. over and above the minimum specified regulatory requirement for the licences held by the NBFC) in its wholly owned subsidiaries, for undertaking a form of business, shall not be taken into account for calculating the limit for unquoted shares; (i) offer any of its own or other securities for any consideration other than cash nor make any loan or advance against these securities. Unless otherwise specified by the Commission by notification in the official Gazette; hold, deal or trade in real estate except for the use of NBFC itself or where specified by the Commission by notification in the official Gazette; raise funds in any form from individuals except as specified by the Commission by notification in the official Gazette; provide unsecured facilities or exposures except as specified by the Commission by notification in the official Gazette; encumber or mortgage or pledge or transfer clients assets deposited as security with the NBFC against any facility extended to the client, for securing its own obligation; and undertake the brokerage business in capital market except by forming a separate company for this purpose5:

(j)

(k)

(l)

(m)

(n)

Provided that this sub-rule shall not apply to NBFC which have a valid license to undertake investment finance services business and have been, to such terms and conditions as Commission may impose, granted permission by the Commission to undertake brokerage business without forming a separate company. (3) An NBFC shall comply with such minimum equity requirement in respect of each form of business specified by the Commission from time to time by notification in the official Gazette. 7A. Monitoring fee.- An NBFC engaged in deposit taking shall, within three months of the close of its financial year, pay to the Commission an annual fee as may be specified by the Commission by notification in the official Gazette. 8. Opening or closure of bank account, account with a broker or branch.- Opening or closure of any bank accounts, account with a broker or branches of an NBFC shall be approved in a
5

Substituted for Provided that the NBFCs already engaged in brokerage business shall comply with this requirement within a period of one year of coming into effect of this provision vide S.R.O. 272 (I)/2010 dated April 21,2010

board meeting by the board of directors of the NBFC after carefully analyzing its merits and financial impact and the reasons must be recorded in the minutes of board meeting. Such decisions and minutes of the board meeting shall be communicated to the Commission within fourteen days of the said meeting. 9. Insurance coverage. A NBFC shall obtain sufficient insurance coverage on its own or for its clients benefit against any losses that may be incurred as a result of employees fraud or gross negligence: 10. Exchange fluctuation risk. A NBFC shall make satisfactory arrangement to insulate itself from exchange fluctuation risks associated with foreign currency obligations and transactions. 10A. Transitional provisions.- Within one year from the coming into force of these provisions, all NBFCs shall alter their memoranda and articles of association or any existing contract or agreement and shall take such other actions as are necessary to bring the memoranda and articles of association and working procedures of the NBFC in conformity with the provisions of these rules:

Provided that, notwithstanding the fact that such actions have not been taken or such changes have not been made, the NBFC shall comply with the provisions of these rules as if they are licensed or registered under these rules.

FORM-I [see rule 4(1)] APPLICATION FOR PERMISSION TO FORM A NON BANKING FINANCE COMPANY Dated: _______________ To The Securities and Exchange Commission of Pakistan, Islamabad. Dear Sir, We hereby apply for grant of permission under rule 4 of the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003, to form a Non-Banking Finance Company under the name and style of * --------------------------------------------The information and documents as required in the Annexure to this form duly verified and signed by all promoters and proposed directors along with five spare copies of this application and an affidavit by them as to the correctness of the details is submitted. We undertake to keep this information upto date by communicating changes or modifications therein within fourteen days of such changes or modifications. A receipt of rupees [(Rs._________)]6 being the processing fee, deposited in-------------- on -----------------------is enclosed.

Yours faithfully, -----------------------Verification by Oath Commissioner.

Name of the company

Substituted for five hundred thousand (Rs. 500,000/-) vide S.R.O.570(I)/2012 dated May 25, 2012

ANNEXURE TO FORM-I [see rule 4] INFORMATION TO BE SUPPLIED FOR OBTAINING PERMISSION TO FORM A NON BANKING FINANCE COMPANY AND SUBSEQUENT CHANGE IN DIRECTORSHIP AND CHIEF EXECUTIVE 1. Full name, former name if any, fathers or husbands name, nationality, residential and business address, national tax number, present occupation of each sponsor, proposed director, proposed chief executive and proposed chairman of the Board. (Institutional sponsors shall mention their names and addresses only instead of giving all these particulars of their nominee directors). Names and addresses of companies, firms and other organizations of which the aforesaid sponsors, proposed chief executive and proposed chairman are or have been directors, partners or office holders during the last ten years. Copies of annual accounts of such companies and firms for the last three years alongwith summary of their paid-up share capital, free reserves, profit after tax and dividend payment to be provided. Financial standing, educational as well as professional qualifications and experience of persons mentioned in paragraph 1 above, supported by documentary evidence. Percentage of capital, each sponsor proposes to contribute in the proposed company. Feasibility report of the proposed company. Evidence of payment of income tax and wealth tax by the sponsors in individualcapacity as well as by the companies, firms, etc., wherein they are or have been directors during the preceding one year. Net-worth certificate of each sponsor supported by a duly authenticated copy of the latest wealth statement filed with the taxation department. In the case of sponsors or directors residing in countries where filing of wealth statement is not the requirement of law, a certificate of personal net-worth and general reputation issued by a bank of international repute shall be acceptable. Names of the bankers of the sponsors alongwith their account numbers. Draft of the Memorandum and Articles of Association. Affidavit from each person mentioned in paragraph 1 above, stating that(a) he has not been associated with any illegal banking business, deposit taking or financial dealings; (b) he and companies in which he is a director or major shareholder have no over-due loans or installments outstanding towards banks or other financial institutions;

2.

3.

4. 5. 6.

7.

8. 9. 10.

(c) neither he nor companies in which he is a director or major shareholder has defaulted in paying taxes as on the date of application; (d) he has not been sponsor, director or chief executive of a defaulting cooperative finance society or finance company; (e) he has never been convicted of fraud or breach of trust or of an offence involving moral turpitude or removed from service for misconduct; (f) he has neither been adjudged an insolvent nor has defaulted in making payments, to his creditors; and (g) his net-worth is not less than twice the amount to be subscribed by him personally (not applicable to a nominee director). 11. Latest CIB report in respect of sponsors (individuals and institutions) as an evidence for statement in clause (b) of paragraph 10

FORM-II [see rule 5(1)] APPLICATION FOR OBTAINING LICENCE TO UNDERTAKE OR CARRY OUT *_________________ AS NON BANKING FINANCE COMPANY Dated, the-------------To, The Securities and Exchange Commission of Pakistan, Islamabad. Dear Sir, We hereby apply for grant of licence under rule 5 of the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003, to undertake __________* as a Non-Banking Finance Company. 2. We hereby furnish the following information, __ (a) date of incorporation as a limited company; (b) authorised, subscribed and paid-up share capital of the company (sponsors' equity indicated separately); (c) names and addresses of directors and number of shares held by each of them; (d) directors' interest, direct or indirect, in any other company with details of such interest; (e) details of persons or group controlling the company including major shareholders with number and value of shares held; (f) names of holding, subsidiary and associated undertaking, if any; (g) details of qualified staff engaged; (h) reasons for selecting the proposed place of business with statistical data; and (i) additional facts in support of this application. 3. Certified copies of the memorandum and articles of association and certificate of incorporation are enclosed. 4. An affidavit as to the correctness of the above information by the chief executive and two directors is also furnished herewith. We undertake to keep this information upto date by communicating changes or modifications therein within fourteen days of such change or modifications. 5. A receipt of rupees [(Rs._________)]7 being the processing fee for each license, deposited in __________ on ________ is enclosed. Yours faithfully, Signature----------------(To be signed by all the directors) *Any one or more of the activities or functions as mentioned under section 282 (A) of the Companies Ordinance, 1984.

Substituted for two hundred and fifty thousand (Rs. 250,000/-) vide S.R.O.570(I)/2012 dated May 25, 2012

FORM -III [see rule 5([6]8)] SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN Islamabad, Dated, the __________ Registration No. _________ LICENCE TO CARRY OUT OR UNDERTAKE *_________AS NON-BANKING FINANCE COMPANY The Securities and Exchange Commission of Pakistan having considered the application for grant of licence under rule 5 of the Non-Banking Finance Company (Establishment and Regulation) Rules, 2003, by **_______________________________ and being satisfied that the said **________________________________________ is eligible for the licence, hereby grants, in exercise of the powers conferred by [sub-rule (6)]9 of rule 5 of the Non- Banking Finance Company (Establishment and Regulation) Rules, 2003, licence to **______________________________________ to undertake or carry out *__________ subject to the conditions stated herein below or as may be prescribed or imposed hereafter. The license is valid from __________________________to_____________________. (date) (date)

Signature of the Officer *Any one or more of the activities or functions as mentioned under section 282 A of the Companies Ordinance, 1984 ** Name of the Company (Official Seal and Stamp)

8 9

Substituted for 2 vide S.R.O.570(I)/2012 dated May 25, 2012 Substituted for sub-rule (2) vide S.R.O.570(I)/2012 dated May 25, 2012

FORM IV [see rule 5(8)] APPLICATION FOR RENEWAL OF LICENCE TO CARRY OUT *_______________ AS NON-BANKING FINANCE COMPANY Islamabad the ................... Securities and Exchange Commission of Pakistan, Government of Pakistan, Islamabad

Dear Sir, We hereby apply for renewal of the licence to carry out *...............................of by **_____________ under rule 5 of the Non-Banking Finance Company (Establishment and Regulation) Rules, 2003. The licence issued or renewed earlier is due to expire on....................... Original receipt of challan [(Rs.__________)]10 is enclosed. evidencing payment of renewal fee of rupees

It is requested that the licence may be renewed w.e.f. ..................... for a period of three11 years.

Yours faithfully,

Name and Signature of the Secretary or a director of the company. *Any one or more of the activities or functions as mentioned under section 282 A of the Companies Ordinance, 1984. ** Name of the company.

10 11

Substituted for two hundred and fifty thousand (Rs.250, 000/ -) vide S.R.O.570(I)/2012 dated May 25, 2012 Substituted for one vide S.R.O. 272 (I)/2010 dated April 21,2010

FORM V [see rule 5([9]12)] SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN LICENCE TO CARRY ON *_______________ AS NON-BANKING FINANCE COMPANY Islamabad, the ............

The Securities and Exchange Commission of Pakistan, having considered the application for renewal of licence to carry out *_________________submitted by **..............................under rule 5 of the Non-Banking Finance Company (Establishment and Regulation) Rules, 2003, and being satisfied that it would be in the public interest so to do, in exercise of powers conferred by [subrule (9)]13 of rule 5 of the said rules, hereby renews the licence of**.......................... to carry out *___________ subject to the conditions stated herein below or as may be prescribed or imposed hereafter.

......................................... (Signature of the officer)

* Any or more one of the activities or functions as mentioned under section 282 A of the Companies Ordinance, 1984. ** Name of the company.

12 13

Substituted for 5 vide S.R.O.570(I)/2012 dated May 25, 2012 Substituted for sub-rule 5 vide S.R.O.570(I)/2012 dated May 25, 2012

GOVERNMENT OF PAKISTAN MINISTRY OF FINANCE, ECONOMIC AFFAIRS AND PLANNING (Finance Division) Islamabad, the 25th July, 2003 NOTIFICATION S.R.O 734 (I)/2003. In exercise of the powers conferred by sub-section (1) of section 39 of the Securities & Exchange Commission of Pakistan Act, 1997 (XLII of 1997), read with sub-section (4) of section 33 thereof, the Federal Government is pleased to make the following rules, the same having been previously published as required by sub-section (2) of section 39 of the said Act, namely:-

The Securities and Exchange Commission of Pakistan (Appellate Bench Procedure) Rules, 2003

1.

Short title and commencement.(1) These rules may be called the Securities

and Exchange Commission of Pakistan (Appellate Bench Procedure) Rules, 2003. (2) 2. They shall come into force at once. Definitions.(1) In these Rules, unless there is anything repugnant in the

subject or context,---(a) Act means the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997); (b) adjudicating authority means a Commissioner or an officer exercising the powers of the Commission in consequence of delegation under section 10 of the Act or any other law being administered by the Commission; (c) appeal means an appeal preferred under section 33;

(d) (e)

appellant means a person who prefers an appeal before the Appellate Bench; Appellate Bench means an Appellate Bench constituted by the Commission under section 33;

(f)

authorized representative means,---(i) in relation to a company, a person who is either the chief executive or a director or secretary of the company or an advocate entitled to appear before High Court or a member of Institute of Chartered Accountants of Pakistan or Institute of Cost and Management Accountants and is duly authorized by the company to appear, plead and act on its behalf before the Appellate Bench; (ii) in relation to the adjudicating authority or any other officer of the Commission, an officer not below the rank of a Deputy Director of the concerned division or any officer authorized by the adjudicating authority to appear, plead and act before the Appellate Bench; and (iii) in relation to any other appellant or respondent, a person who is an advocate of High Court, or a member of Institute of Chartered Accountants of Pakistan or Institute of Cost and Management Accountants and is duly authorized by the appellant or respondent to appear, plead and act on his behalf before the Appellate Bench ; or (iv) in relation to a director of the company, in addition to sub-clause (iii) a director representing fellow appellants or respondents and is duly authorized by the appellant or respondent to appear, plead and act on his behalf before the Appellate Bench;

(g)

bank challan means an original receipt issued by one of the several bank branches which are for the time being authorized by the Commission for collection of receipts or other services to the account of the Commission;

(h)

Commission means the Securities and Exchange Commission of Pakistan

established under section 3; (i) (j) form means form appended to these rules; Registrar means an officer of the Commission who is appointed as the

Registrar of the Appellate Bench and for the purpose of these rules shall also include a Deputy Registrar performing functions of the Registrar under these rules; and (k) (2) Section means a section of the Act. Words and expressions used in these rules, and not defined herein, shall have the

meanings respectively assigned to them in the Act or any other law for the time being administered by the Commission under which the adjudicating authority has passed the order appealed against. 3. Limitation for filing appeal.(1) Every appeal shall be filed within a period of

thirty days from the date on which a copy of the order against which the appeal is preferred is received by the appellant: Provided that the Appellate Bench may, upon an application filed in this behalf, entertain an appeal after the expiry of the said period of thirty days if it is satisfied that there was sufficient cause for not filing it within the period. (2) Subject to anything contrary on the record the copy of the order against which an

appeal is filed shall be presumed to have been received by the appellant if _____ (a) sent by courier, three days following the day it is dispatched by the Receipt and Issue department of the Commission; (b) sent by registered post, seven days following the date it is mailed by the Receipt and Issue department of the Commission; and (c) sent by hand delivery; on production of the receipt showing the date it is served on the appellant.

4.

Form and procedure of appeal.(1) A memorandum of appeal shall be

presented, in the forms prescribed in Schedule to these rules, to the Registrar or shall be sent by registered post or through a recognized courier addressed to the Registrar. (2) Every appeal shall be supported by a duly verified affidavit sworn by the appellant

and by one of the appellants where there are more than one, and in case the appeal is presented by a body corporate, by one of its director or secretary or chief financial officer thereof: Provided that the Appellate Bench or Registrar may for sufficient reasons, grant relief to any other person duly authorized by the petitioner to make and file the affidavit. (3) A memorandum of appeal sent by post shall be deemed to have been presented

to the Registrar on the day it is received by the Commission. 5. Sittings of Appellate Bench.The Appellate Bench shall hold its sittings either

at its principal seat at Islamabad in the Head Office of the Commission or any of the regional offices of the Commission, as may be deemed fit by the Appellate Bench. 6. Language of Appellate Bench.(1) The proceedings of the Appellate Bench

shall be conducted in English or Urdu. (2) Appeal, application, representation, document or other matters contained in any

language other than English or Urdu shall only be admissible where a true copy of translation thereof in English or Urdu accompanies the same and in the manner as deemed appropriate by the Appellate Bench. 7. Appeal to be in writing.(1) Every appeal, application, reply, representation or

any document filed before the Appellate Bench shall be type-written or printed neatly and legibly on one side of good quality paper of foolscap size in double space and separate sheets shall be stitched together and every page shall be consecutively numbered and filed in the manner provided in sub-rule (2).

(2)

The appeal under sub-rule (1) shall be presented in four sets in a paper-book

along with an empty file size envelope bearing the name and full address of the respondent and in case the respondents are more than one, then sufficient number of extra paper-books together with empty file size envelopes bearing names and full addresses of each respondent shall be furnished by the appellant. 8. Presentation and scrutiny of memorandum of appeal by Registrar.(1) The

Registrar shall endorse on every appeal the date on which he has received the appeal under rule 4, or deemed to have been presented under that rule, and shall sign an endorsement to that effect. (2) If, on scrutiny, the appeal is found to be in order by the Registrar, it shall be duly

registered and given a serial number. (3) If an appeal on scrutiny is found to be defective by the Registrar and the defect

noticed is of formal nature, the Registrar may allow the appellant to rectify the same in his presence and if the said defect is not of formal nature, the Registrar may allow the appellant such time to rectify the defect as he may deem fit. If the appeal has been sent by post and found to be defective, the Registrar may communicate the defects to the appellant and allow the appellant such time to rectify the defect as he may deem fit. (4) If the appellant fails to rectify the defect within the time allowed in sub-rule (3),

the Registrar may, for reasons to be recorded in writing, decline to register such memorandum of appeal and communicate the decision to the appellant within seven days thereof. (5) An appeal against the order of the Registrar under sub-rule (4) shall be preferred

to the Appellate Bench within fifteen days of receiving of such order and the decision of the Appellant Bench thereon shall be final. 9. Fee. (1) Every memorandum of appeal shall be accompanied with a fee

provided in sub-rule (2) and any fee payable under these rules may be remitted in the form of bank challan or a bank draft in favour of Securities and Exchange Commission of Pakistan. (2) The amount of fee payable in respect of any appeal preferred against an order of the

adjudicating authority shall be five hundred rupees. 10. Contents of memorandum of appeal.(1) Every memorandum of appeal filed

under rule 4 shall set forth concisely under distinct heads, the grounds of such appeal and such grounds shall be numbered consecutively and shall be in the manner specified in sub-rule (1) of rule 7 and shall contain no intemperate or improper language. 11. Other documents to accompany memorandum of appeal.(1) Apart from

other documents, every memorandum of appeal shall be accompanied by a certified copy of the order appealed against. (2) Where an appellant or respondent is represented by an authorized representative,

the written authorization in his favour signed by the appellant or as the case may be, respondent shall be appended to the appeal. 12. Plural remedies.A memorandum of appeal shall not seek relief or reliefs

therein against more than one order unless the reliefs prayed for are consequential. 13. Adjournments (1) If on the day fixed or any other day to which the hearing

may be adjourned the appellant does not appear when the appeal is called on for hearing, the Appellate Bench may make an order that the appeal be dismissed: Provided that the Appellate Bench may, upon an application submitted by the appellant giving sufficient cause for his non-appearance, make an order setting aside ex parte order and restore the appeal on payment of such costs as it may, in the circumstances of the case, deem necessary. (2) any. (3) The appellant or respondent seeking adjournment for a fixed date of hearing shall The dismissal of an appeal under sub-rule (1) shall be notified to the appellant,

the adjudicating authority against whose order the appeal is preferred and other respondent, if

be required to give reasons along with evidence of his non-appearance or his authorized

representative before the Appellate Bench. (4) Subject to the approval of the Appellate Bench any party seeking more than two

adjournments shall be liable to pay a special cost in the sum of five thousand rupees if no notice is received prior to two days of hearing by the party seeking such adjournment. 14. Notice of appeal to all concerned.Where the appeal is not dismissed under

rule 14, a copy of the memorandum of appeal and paper-book shall be served by the Registrar on the adjudicating authority and respondent as soon as they are received by the Registrar, by hand delivery, or by registered post or by courier as the case may be. 15. Filing of reply to the appeal and other documents by the respondent.(1)

The respondent may file such number of copies of reply statement as is required under sub-rule (2) of rule 7 along with similar number of documents in a paper-book form with the Registrar within such time normally not exceeding fifteen days as the Registrar may specify. (2) Every reply, application or written representation filed before the Appellate

Bench shall be verified in the manner provided for in the form. (3) respondent. (4) The Appellate Bench may, in its discretion, on application by the respondent or A copy of every application, reply, document or written material filed by the

respondent before the Appellate Bench shall be forthwith served on the appellant by the

other interested party allow the filing of reply referred to in sub-rule (1) after the expiry of the period originally allowed. 16. Date of hearing to be notified.The Registrar shall notify the date, time and

venue of hearing of the appeal to all the parties in such manner as the Appellate Bench may, by general or special order, direct. 17. Hearing of appeal and decision of appeal (1) On the day fixed for hearing,

or on any other day to which the hearing may be adjourned, the appellant shall be heard

personally, or through his authorized representative, in support of the appeal. The Appellate Bench shall then hear the respondent or his authorized representative against the appeal and in such a case the appellant shall be entitled to reply. (2) All parties appearing before the Appellate Bench may be required to submit a

summary of their arguments in writing at the conclusion of the hearing provided that the Appellate Bench shall not be bound to entertain such arguments which are included in the summary but not pressed before the Appellate Bench during the course of hearing.

(3)

An appeal shall as far as possible be decided within forty-five days of its filing.

(4)

The hearing of appeals under these rules shall not be public proceedings,

provided that any person not being a party to the proceeding before the Appellate Bench may attend such proceedings with the prior approval of the Appellate Bench.

(5)

The Appellate Bench in appeal may, inter alia, confirm, remand, set aside or cancel

the order appealed against or enhance or reduce the penalty or make such other order as it may deem just and equitable in the circumstances of a case.

(6)

If the Commissioners constituting the Appellate Bench hearing the appeal are

divided in opinion, the appeal shall be placed for hearing and disposal before a larger Bench to be nominated by Chairman of the Commission.

18.

Facts to be proved by affidavit. The Appellate Bench may, at any time, for

sufficient reason order that any particular fact or facts may be proved by affidavit or that the affidavit of any witness may be read at the hearing, on such conditions as it may deem appropriate. 19. Order to be signed and dated. (1) Every order of the Appellate Bench shall

be signed and dated by the Commissioners comprising the Bench who may, subject to recording

of reasons in writing, pass interim orders or injunctions in the interest of justice. (2) The order shall be pronounced in the sitting of the Appellate Bench or at any

time as the Appellate Bench may deem fit. 20. Communication of orders.A copy of the duly signed order passed by the

Appellate Bench shall be communicated to all the parties. 21. Issue of directions by Appellate Bench.An Appellate Bench may make such

orders, or give such directions, as may be necessary or expedient to give effect to its orders or to prevent abuse of its process or to secure the ends of justice. 22. Fee for inspection of records and obtaining copies thereof.(1) A fee of

two hundred rupees shall be charged for inspecting the records relating to pleadings of the parties available with the Registrar. (2) A fee of twenty rupees for a page or part thereof shall be charged for providing

copies of the records of an appeal before the Appellate Bench. (3) An additional fee of two hundred rupees shall be charged for providing a certified

copy of the order passed by the Appellate Bench or any other document forming part of the pleadings before the Appellate Bench. 23. Functions of the Registrar. (1) The Registrar of the Bench shall discharge his

functions under general superintendence of the Appellate Bench and shall discharge such other functions as are assigned to him under these rules or by the separate order in writing by the Appellate Bench. The Registrar shall have the custody of the records of the Appellate Bench. (2) Registrar. (3) Subject to any general or special direction by the Appellate Bench, the official The official stamp of the Appellate Bench shall be kept in the custody of the

stamp of the Appellate Bench shall not be affixed to any order, summons or other process save

under the authority in writing from the Appellate Bench. 24. Additional functions and duties of Registrar.In addition to the functions

and duties assigned in the preceding rule, the Registrar shall also have, subject to any general or special orders of the Appellate Bench, the following functions and duties, namely: (a) (b) to receive all appeals, replies and other documents; to decide all questions arising out of the scrutiny of the appeals before they are registered; (c) to require any appeal presented to the Appellate Bench to be amended in accordance with these rules or the relevant law; (d) subject to the directions of the Bench to fix the date of hearing of the appeals or other proceedings and issue notices thereof; (e) (f) to order grant of copies of documents or proceedings to parties; to grant leave to inspect the record of the Appellate Bench in a particular appeal case; (g) to dispose of all matters relating to the service of notices or other processes, application for the issue of fresh notice or for extending the time for or ordering a particular method of service on a respondent including a substituted service by publication of the notice by way of advertisement in the newspapers; (h) (i) to requisition records from the custody of any adjudicating authority; to maintain record of appeal cases received by the Appellate Bench in good order for a period of at least ten years; (j) to maintain a proper record of the appeals filed; and

(k)

to maintain a proper record of the records which are destroyed after completion of a period of ten years from the date of decision on an appeal.

__________________________

SCHEDULE
[See rule 4(1)]

Form - A
Form-A shall be appended to the appeal by the Appellant giving the following particulars: (1) Title : A .B . Appellant versus CDand others Respondent(s) (2) Particulars appellant: of the : (a) Name of the appellant; (b) In case of a company, address of registered office, in other cases mailing address for service of all notices; (c) Telephone/Fax number and E-mail address, if any. (3) Particulars of respondent(s) the : (a) Name of the respondent(s) (b) In case of a company address of registered office in other cases mailing address for service of all notices; (c) Telephone/Fax number and E-mail address, if any. Signatures of the Appellant or his authorized representative _______________________________________ ___ (Name in Block Letters)

2.

For use in the Appellate Benchs office:

(a) (b) (c) (d)

Date of presentation before the Registrar Date of receipt by post Registration number Signature of the Registrar

FORM-B BEFORE THE APPELLATE BENCH NO._________ SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN A .B . Appellant(s) versus CDand other Respondent(s) Appeal under section 33 of the Securities and Exchange Commissions Act 1997 (XLII of 1997) read with section(s) ( specify the relevant provisions invoked in the appeal ). 1. Bench. 2. Limitation Jurisdiction of the Appellate Bench

The appellant declares that the subject matter of the appeal falls within the jurisdiction of the Appellate

The appellant further declares that the appeal is within the limitation period as prescribed in section 33 of the Securities and Exchange Commission of Pakistan Act, 1997. 3. preferred: The facts of the case are given below: (give a concise statement of facts and grounds of appeal against the specific order in a chronological order, each paragraph containing as nearly as possible a separate issue or fact). 4. Relevant provisions of law. Facts of the case and the details of the orders against which appeal is

(Reference must be made to all the relevant provisions invoked and to be relied upon in the appeal). 5. Legal grounds

(Give all the legal grounds with reference to the law they are based upon). 6. Interim order, if prayed for

(Give here the nature of the interim order prayed for and reference to the application No._______

attached with the appeal in this regard). 7. Relief sought In view of the facts mentioned in paragraphs 3,4 and 5 above, the appellant prays for the following relief: (Specify the relief(s) sought, explain the grounds for relief(s) and the legal provisions, if any, relied upon). 8. Matter not pending with any other court etc.

The appellant further declares that the matter regarding which this appeal has been made is not pending before any court of law or any other authority or any other Tribunal. 9. Details of index

An index containing the details of the documents to be relied upon is enclosed. 10. List of enclosures Signature of the appellant/authorized representative VERIFICATION I, (Name in full and block letters) son/daughter/wife of ____________________________ being the appellant/authorized representative of (_____________________) do hereby solemnly declare tha t the foregoing constitutes full, true and plain disclosure of all material facts and nothing has been concealed, and that the contents of paras 1-10 are true to my personal knowledge and belief. Verified today thisday of .. Signature of the appellant/authorized representative. Place: Date: [No.F.3(43)Inv.II/2002] (MUNIR AHMAD) Section Officer (Inv.II) The Manager, Printing Corporation of Pakistan Press, Islamabad.

[for publication in the Part-II of Gazette of Pakistan (Extra -Ordinary)]

GOVERNMENT OF PAKISTAN SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN

Islamabad, the December 2, 2003.

NOTIFICATION

S.R.O. 1086 (I)/2003.- In exercise of the powers conferred by sub-section (1) of section 506 of the Companies Ordinance, 1984 (XLVII of 1984), read with clause (b) of section 43 of the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997), the Securities and Exchange Commission of Pakistan, with the approval of the Federal Government, is pleased to make the following rules, the same having been published previously as required by the said section 506, namely:-

1.

Short title, commencement and application.- (1) These rules may be

called the Single Member Companies Rules, 2003.

(2)

These rules shall come into force at once.

(3)

These rules shall apply to

(a) (b)

a company incorporated as single member company; and a private company limited by shares which has more than one member and becomes a single member company after complying with the requirements of these rules.

2.

Definitions.- (1) In these rules, unless there is anything repugnant in the

subject or context,-

(a)

alternate nominee director means an individual nominated by a single member to act as nominee director in case of nonavailability of nominee director;

(b) (c)

Form means the Form annexed to these rules; nominee director means an individual nominated by a single member to act as director in case of his death;

(d)

Ordinance means the Companies Ordinance, 1984 (XLVII of 1984);

(e)

private company means a private company which is not a single member company;

(f) (g)

section means section of the Ordinance; single member company or SMC means a private company which has only one member; and

(h)

sole director means the director of a single member company who is for the time being the only director.

(2)

The words and expressions used but not defined in these rules shall have

the same meaning as are assigned to them in the Ordinance.

3.

Single member company.- A single person may form a single member

company and it shall be incumbent on such person to file with the registrar at the time of incorporation a nomination in the form as set out in Form S1 indicating at least two individuals to act as nominee director and alternate nominee director, in accordance with the provisions of rule 7, of the company in the event of his death and where the membership of a single member company is transferred to a new member, the company

shall, within fifteen days from such transfer, also file with the registrar, a nomination in the form as set out in Form S1:

Provided tha t a nominee director shall be an individual other than the secretary and to whom the condition of being a member of the company shall not apply:

Provided further that a single member of a company originally incorporated as a single member company, or converted as such before commencement of these rules, shall also file nomination in the form as set out in Form S1 within two months of the commencement of these rules.

4.

Change in status of a single member company .- (1) A single member

company may be converted into a private company on increase of the number of its members to more than one due to transfer of shares or further allotment of shares or death of the single member or operation of law and a single member company converting into a private company,-

(a)

shall, in case of transfer of shares or further allotment of shares,-

(i)

pass a special resolution for change of status from single member company to private company and alter its articles accordingly within thirty days of transfer of shares or further allotment of shares; and

(ii)

appoint and elect one or more additional directors in pursuance of clause (b) of sub-section (1) of section 174 within fifteen days of date of passing of the special resolution and notify the appointment on Form 29 prescribed under the Companies (General Provisions and

Forms) Rules, 1985 (hereinafter referred to as Form 29) within fourteen days;

(b)

may, in case of death of single member, either be wound up in accordance with the provisions of the Ordinance or be converted into private company for which,

(i)

the nominee director shall transfer the shares in the name of the legal heirs of the single member within seven days;

(ii)

the company shall pass a special resolution for change of status from single member company to private company and alter its articles accordingly within thirty days of transfer of shares; and

(iii)

the members shall appoint and elect one or more additional directors in pursuance of clause (b) of sub-section (1) of section 174 within fifteen days of date of passing of the special resolution and notify the appointment on Form 29 within fourteen days of date of such appointment; and

(c)

shall, in case of operation of the law,-

(i)

transfer the shares, within seven days, in the name of relevant persons to give effect to the order of the court or any other authority;

(ii)

pass a special resolution for change of status from single member company to private company and alter its articles accordingly within thirty days of transfer of shares; and

(iii)

appoint additional director or directors in pursuance of clause (b) of sub-section (1) of section 174 within fifteen

days of date of passing of the special resolution and notify the appointment on Form 29 within fourteen days of date of such appointment.

(2)

A single member company originally incorporated or converted from

private company as such may convert into private company in accordance with the provisions of sub-rule (1).

(3)

The persons becoming members due to transfer or transmission or further

allotment of shares, as the case may be, shall pass a special resolution to make alteration in articles and appoint one or more additional directors.

(4)

Where a single member company converts into a private company

pursuant to sub-rule (1), it shall file a notice of the fact in writing in the form as set out in Form S2, with the registrar within sixty days from the date of passing of special resolution.

5.

Meetings of directors and members .- Any provision of the Ordinance or

rules made thereunder or articles of the company which-

(a)

enables or requires any matter to be done or to be decided by directors or members, as the case may be, of the company; or

(b)

requires any matter to be decided by a resolution of the directors or members, as the case may be, of the company,

shall be deemed to be satisfied if the decision is taken by the single member or sole director, as the case may be, and is drawn up in writing and recorded in the minutes book. 6. Company secretary .- (1) A single member company shall appoint a

company secretary within fifteen days of incorporation or of becoming a single member

company or of the office of company secretary falling vacant and notify such appointment on Form 29 within fourteen days of the date of such appointment:

Provided that the sole director shall not be the company secretary.

(2)

The company secretary shall attend and cause a fair and accurate summary

of the minutes of all proceedings of general meetings and meetings of director or directors, as the case may be, along with the names of those participating in such meetings to be entered in properly maintained minutes book.

7.

Transfer of management to nominee director. - (1) The single member

shall nominate two individuals, one of whom shall become nominee director in case of death of single member and the other shall become alternate nominee director to work as nominee director in case of non-availability of the nominee director.

(2)

The nominee director shall,-

(a)

manage the affairs of the company in case of death of single member till the transfer of shares to legal heirs of the single member;

(b)

inform the registrar concerned of d eath of the single member, provide particulars of the legal heirs and in case of any impediment report the circumstances seeking the directions in the form as set out in Form S3 within seven days of the death of the single member;

(c)

transfer the shares to legal heirs of the single member; and

(d)

call the general meeting of the members to elect directors.

(3)

It shall also be incumbent upon the company secretary to inform the

registrar concerned about the death of the single member.

(4)

In case of any impediment due to transfer of shares, or election of

directors or any other circumstances, the registrar concerned shall call, or direct to calling of the meeting of legal heirs, in exercise of the powers conferred by section 170 in such manner as he deems fit and give such directions with regard to election of directors and making alteration in the articles, if any, and such ancillary and consequential directions as he thinks expedient in relation to calling, holding and conducting of the meeting.

8.

Contracts with single member.- Where a single member company

enters into a contract with the single member of the company, the single member company shall, unless the contract is in writing, ensure that the terms of the contract are forthwith set out in a written memorandum or are recorded in the minutes of the first meeting of the directors of the company following the making of the contract.

9.

Company becoming a single member company.- (1) No private

company having two or more members on the commencement of these rules, shall become a single member company unless it passes a special resolution for change of its status and makes necessary alteration in its articles and obtains approval of the Commission.

(2)

An application for seeking approval under sub-rule (1) shall be submitted

in the form as set out in Form S4 and shall be submitted to the Commission by the company not later than thirty days from the date on which the special resolution for change of status to single member company was passed.

(3)

The Commission on being satisfied, after obtaining such further

information as it may consider necessary, grant the approval applied for subject to such conditions as it may deem fit to impose.

(4)

The company shall transfer shares in the name of single member within

fifteen days of the approval of the Commission and notify change in the board of directors on Form 29 within fourteen days from date of transfer of shares.

(5)

A certified copy of the order containing the approval under sub-rule (1),

together with a notice in the form as set out in Form S5 and a nomination of nominee directors in the form as set out in Form S1 shall be filed with the registrar concerned within the time as specified in rule 3.

10.

XYZ (SMC-Private) Limited to be the pattern and style of the

name of a single member company.- (1) XYZ (SMC-Private) Limited shall be the pattern and style of the name of a single member company and the parenthesis, letters, hyphen and words (SMC-Private) Limited, shall from part of the name of every single member company.

(2)

On change of status of a private company into a single member company,

the registrar concerned shall issue a certificate in the form as set out in Form S6, and the parenthesis, letters, hyphen and words (SMC-Private) Limited shall from part of the name of the company.

(3)

On change of status of a single member company into a private company,

the registrar concerned shall issue a certificate in the form as set out in Form S7 omitting the letters and hyphen SMC- from part of the name of the single member company.

11.

Regulations of single member company .- A single member company

may adopt the regulations as set out in Form S8, as its articles or as nearly as possible thereto. FORM S1 [See rules 3 and 9(5)] THE COMPANIES ORDINANCE, 1984 NOTICE OF NOMINATION OF NOMINEE DIRECTOR BY SINGLE MEMBER OF A SINGLE MEMBER COMPANY Please complete in typescript or in bold block capitals.
1. 2. Incorporation Number: Name of the Company:

3. Fee paid Rs: 4. 5. 6. 7. Name and branch of bank: Day Date of payment: Bank Challan No: (Bank Challan to be attached in original). Month Year

Name, NIC No., address and relationship of legal heirs: Name. NIC No. Address. Relationship.

8.

Name, NIC No., and address of nominee directors: Name. NIC No. Address. Status. Nominee director.

Alternate nominee director. 9. Consent of nominee director: I, hereby, consent to act as nominee director of the company in case of death of the single member. Signature of nominee director. 10. Consent of alternate nominee director: I, hereby, consent to act as alternate nominee director of the company in case of non-availability of nominee director. Signature of alternate nominee director. 11. Signature of single member:

12. N.I.C No. of signatory: Day 13. Date: Month Year

________________________________________ FORM S2 [See rule 4(2)] THE COMPANIES ORDINANCE, 1984 NOTICE TO CHANGE OF STATUS OF A SINGLE MEMBER COMPANY INTO A PRIVATE COMPANY Please complete in typescript or in bold block capitals.
1. 2. Incorporation Number: Name of the Company:

3. Fee paid Rs: 4. 5. Name and branch of bank: Day Date of payment: Month Year

6. 7.

Bank Challan No: Precise reasons for change of status from single member company to a private company:

(Bank Challan to be attached in original). 1. Transfer of shares. 2. Further allotment of shares. 3. Death of single member. 4. Operation of law. (Tick appropriate box)

8. Date of transfer of shares, further allotment of shares, death or order of the court, etc:

Day

Month

Year

(Enclose attested copies of transfer deeds or return of allotment or other document effecting the transfer of shares). 9. Date of special resolution for change of status from single member company to a private company and alteration in articles: Day Month Year

(Enclose copy of special resolution). 10. Names, addresses and shareholding of present members: Name. Address. Shares held.

Total. 11. Signature of chief executive:

12. Name: 13. Designation: 14. N.I.C No. of signatory: Day 15. Date: Notes: 1. 2. The special resolution shall be passed by the members of the private company. The notice shall be signed by the chief executive appointed by the directors of the private company. Month Year

_________________________________________

FORM S3 [See rule 7(2)(b)] THE COMPANIES ORDINANCE, 1984 NOTICE OF DEATH OF SINGLE MEMBER Please complete in typescript or in bold block capitals.
1. 2. Incorporation Number: Name of the Company:

3. Fee paid Rs: 4. 5. 6. Name and branch of bank: Day Date of payment: Bank Challan No: Day 7. 8. Date of death of member: Names, NIC No., address and relationship of legal heirs: Name. NIC No. (Bank Challan to be attached in original). Month Year Month Year

Address.

Relationship.

9.

Circumstances leading to impediment, if any:

10. Signature of nominee director: 11. Name of signatory:

12. N.I.C No. of signatory: Day 13. Date: _________________________________________ Month Year

FORM S4 [See rule 9(2)] THE COMPANIES ORDINANCE, 1984 APPLICATION TO THE SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN FOR THE APPROVAL TO CHANGE OF STATUS OF A PRIVATE COMPANY INTO SINGLE MEMBER COMPANY Please complete in typescript or in bold block capitals.

1.

Incorporation Number:

2.

Name of the Company:

3. Fee paid Rs: 4. 5. 6. 7. Name and branch of bank: Day Date of payment: Bank Challan No: Precise reasons for changing of status to single member company: (Bank Challan to be attached in original). 1. Transfer of shares. 2. Other (please specify). (Tick appropriate box) 8. Name of proposed single member: Month Year

9. Names and addresses of the major creditors (of Rs.50,000 and above) indicating the amount due to each: (List and NOC of each creditor to be attached). 10. Date of filing the special resolution with Registrar: (Copy of special resolution and proposed altered articles be attached).

11.

Verification:

We do hereby solemnly and sincerely declare that: (a) we are the directors / members of this company; (b) the shares have not yet been transferred to the proposed single member; (c) the shareholders other than proposed single member are wiling to transfer their shares; (d) the information submitted in this application is correct and that nothing has been withheld or suppressed; and (e) we make this solemn declaration conscientiously believing the same to be true.

12.

Signature of directors / members:

13. Names and designations: 14. N.I.C No. of signatories: Day 15. Date: Notes: 1. 2. The application shall be signed by all directors / members of the private company. The application shall be furnished in duplicate and one copy of the application shall also be forwarded to registrar concerned. ___________________________________________ Month Year

FORM S5 [See rule 9(5)] THE COMPANIES ORDINANCE, 1984 NOTICE FOR CHANGE OF STATUS OF PRIVATE COMPANY INTO SINGLE MEMBER COMPANY Please complete in typescript or in bold block capitals.
1. Incorporation Number:

2.

Name of the Company:

3. Fee paid Rs: 4. 5. 6. Name and branch of bank: Day Date of payment: Bank Challan No: (Bank Challan to be attached in original). Month Year

Day 7. Date of transfer of shares:

Month

Year

(Enclose attested copies of transfer deeds and minutes of meeting of directors). 8. Signature of single member / secretary: 9. Name: 10. Designation: 11. N.I.C No. of signatories: Day 12. Date: Month Year Single member. Secretary.

___________________________________ FORM S6 [See rule 10(2)]

SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN CERTIFICATE ON CHANGE OF STATUS OF A PRIVATE COMPANY INTO A SINGLE MEMBER COMPANY Company Registration No.___________________ I hereby certify that pursuant to the provisions of rules 3 and 9 of the Single Member Companies Rules, 2003, _______________________________________________ has, in compliance with the requirements precedent and incidental to the change of status of a private company into a single member company, been converted into and registered as a single member private limited company with effect from _______________. Given under my hand at _________________ this _________________ day of ___________________two thousand and _____________________________

Fee Rs.________________________.

REGISTRAR OF COMPANIES* *Designation of the officer signing the certificate. ___________________________________

FORM S7 [See rule 10(3)]

SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN CERTIFICATE ON CHANGE OF STATUS OF A SINGLE MEMBER COMPANY INTO A PRIVATE COMPANY Company Registration No.___________________ I hereby certify that pursuant to the provisions of rule 4 of the Single Member Companies Rules, 2003,_______________________________________________________ ________________________________ has complied with the requirements precedent and incidental to the change of status of a single member company into a private company and converted into a private company with effect from _______________. Given under my hand at _________________ this _________________ day of ___________________two thousand and _____________________________ Fee Rs.________________________.

REGISTRAR OF COMPANIES* *Designation of the officer signing the certificate.

_______________________________ FORM S8 [See rule (11)]

REGULATIONS FOR MANAGEMENT OF A SINGLE MEMBER PRIVATE COMPANY LIMITED BY SHARES INTERPRETATION
1.

In the interpretation of these articles the following expressions shall have the following meanings unless repugnant to or inconsistent with the subject articles,(a) alternate nominee director means an individual nominated by the single member to act as nominee director in case of non-availability of nominee director; company or this company means XYZ (SMC-Private) Limited; directors or board of directors means board of directors so that it may consist of only the sole director or more than one directors if so appointed under the relevant provisions of the Ordinance; in writing means written or printed or partly written and partly printed or lithographed or typewritten or other substitute for writing; member director means an individual becoming director due to membership of the company in terms of clause (h) of section 187; nominee director means an individual nominated by the single member to act as director in case of death of single member; (g) private company means a private company other than a single member company; rule means the rule of the Single Member Companies Rules, 2003; Rules means the Single Member Companies Rules, 2003; section means section of the Companies Ordinance, 1984 (XLVII of 1984); and sole director means the director of the company who is for the time being the only director and the single member of the company. PRELIMINARY

(b) (c)

(d)

(e)

(f)

a.

(h) (i) (j)

(k)

2.

Any provision of the Ordinance or rules and regulations made thereunder which apply in relation to a private company limited by shares incorporated under the Ordinance shall, in the absence of any express provision to the contrary, apply in relation to a single member company as it applies in relation to such a company

which is formed by two or more persons or which has two or more persons as members. SINGLE MEMBER COMPANY 3. The company is a single member company and as such being a Private Company limited by shares (a) it shall not issue invitation to the public to subscribe for any share of the company; the company shall not register any share(s) in the name of two or more persons to hold one or more shares individually or jointly; and number of the members of the company shall be limited to one. SHARES 4. The company may increase the nominal share capital in accordance with sections 92 and 94. 5. Share certificate(s) shall be issued under the seal of the Company and shall be signed by the member director, and in case of his death, by the nominee director and the secretary. 6. The company may, upon passing of a special resolution, issue further shares or transfer existing shares or part thereof causing the number of members to become two or more in accordance with the Rules but it shall become a private company thereafter. 7. The company shall not transfer all of the shares of a single member to two or more persons or part of shares of single member to other person(s) or allot further shares to any person other than the single member or, at any time, allow transfer of shares or allotment of shares or both resulting in number of members to become two or more, except under the authority of a special resolution for change of status from single member company to private company and to alter its articles accordingly.

(b)

(c)

8.

The single member may transfer all of his shares to a single person under the authority of an ordinary resolution whereby the company shall remain a single member company as it was before such transfer.

9.

A person whose name is entered as a member in the register of members shall without payment, be entitled to receive, within ninety days after allotment or within forty-five days of the application for registration of transfer, a certificate under the seal specifying the share or shares held by him. TRANSFER AND TRANSMISSION OF SHARES

10.

Transfer and transmission of shares shall be in accordance with provisions of sections 74 to 81.

11.

In case of death of the single member, the power to register or refuse transfer of shares shall be exercised by the secretary and the nominee director under the Rules.

12.

If the company allots further shares or the shares held by the single member are transferred in total or in part and as a result thereof the company becomes a private company, the fact that it has converted from a single member company to a private company and number of its members has increased to two or more shall be recorded in the register of members along with the date of the event and the particulars of the members.

13.

Transmission of shares to the legal heirs shall be recorded in the register of members by the secretary and the nominee director. CHANGE OF STATUS

15.

14.

The company may convert itself from single member private

company to a private company in accordance with the provisions of rule 4. GENERAL MEETINGS

15.

A general meeting, to be called annual general meeting, shall be held, in accordance with the provisions of section 158 and rule 5.

16.

All general meetings of the company other than an annual general meeting as specified in section 158 shall be called extraordinary general meetings and shall be deemed to be held in accordance with the provisions of rule 5.

17.

The secretary shall attend all the meetings of the company but shall have no vote.

NOTICE AND PROCEEDINGS OF GENERAL MEETINGS

18.

In case where the law specifies time period for giving of notice of any meeting of the members or of director(s), requirements of the law shall be deemed to have been complied with if both the secretary and the members are notified of the meeting and they attend such meeting provided that in case of annual general meeting the time period for giving of notice to the auditor of the company shall not be less than twenty one days.

19.

The single member present in person or through proxy shall be the quorum for the general meeting provided that secretary shall not act as proxy of the single member.

20.

If the single member takes any decision which is required to be taken in a meeting of the board or in the general meeting or by means of a resolution and such decision is delivered by the single member in writing, within three days of such decision, to the company for entry in the minute book and is so recorded, that decision shall be valid as if agreed in such a meeting.

DIRECTOR(S) 21. The company shall always have the single member as a director but it may have such number of other director(s) who fulfill the conditions as specified in section 187.

22.

The board or the general meeting shall not have the power to remove the member director but the single member (or member director) shall have the power to remove any director, chief executive or secretary through a resolution.

23.

The director(s) shall have the powers as specified in section 196.

24.

The director(s) shall appoint a chief executive in accordance with the provisions of sections 198 and 199.

25.

The director(s) shall cause minutes to be made in books as required under section 173. SECRETARY

26.

A single member private limited company shall appoint a secretary in terms of section 204A and rule 6 who shall be responsible for discharge of duties and functions normally discharged by a secretary under the corporate laws and secretarial practice.

27.

The secretary shall be appointed at the time of incorporation and subsequently on the same day or the day next following his resignation or removal or in case of his death within seven days of the event.

28.

The sole director shall not be the secretary of the company.

CONTRACTS WITH THE SINGLE MEMBER

29.

Contract between the company and single member shall be made in accordance with the provisions of rule 8.

DIVIDENDS AND RESERVES

30.

The company may declare dividends and pay in accordance with the provisions of sections 248 to 251.

ACCOUNTS 31. The director(s) shall cause to keep proper books of account in accordance with the provisions of section 230 and shall, as required by sections 233 and 236, cause to be prepared and to be laid before the company in general meeting such profit and loss accounts or income and expenditure accounts and balance sheets duly audited and reports as are referred to in those sections. They shall in all respects comply with the provisions of sections 230 to 236.

32.

So long as the company has only one director, the requirements of section 241 shall be deemed to have been met if the balance sheet and profit and loss account is authenticated by the sole director.

33.

Auditors shall be appointed and their duties regulated in accordance with the provisions of sections 252 to 255. THE SEAL

34.

The director(s) shall provide for the safe custody of the seal and the seal shall not be affixed to any instrument except by the authority of a resolution of the board of director(s) or by a committee of director(s) authorized in that behalf by the member director and in the presence of at least member director and of the secretary or such other person as the director(s) may appoint for the purpose; and the member director and the secretary or other person as aforesaid shall sign every instrument to which the seal of the company is affixed in their presence. WINDING UP

35.

The company shall follow, in case of its winding up, the relevant provisions of the Companies Ordinance, 1984 (XLVII of 1984). INDEMNITY

36.

Every officer or agent for the time being of the company may be indemnified out of the assets of the company against any liability incurred by him in defending any proceedings, whether civil or criminal arising out of his dealings in relation to the affairs of the company, except those brought by the company against him, in which judgment is given in his favour or in which he is acquitted, or in connection with any application under section 488 in which relief is granted to him by the Court.

________________________________________________________________________ [F.NO.CLD/602/1/2003]

(MOHAMMED HAYAT JASRA) EXECUTIVE DIRECTOR

SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN

Islamabad, the 30th June, 2004

NOTIFICATION

S.R.O

541 (I)/2004 In exercise of powers conferred by section 33

read with section 16 of the Securities and Exchange Ordinance, 1969 (XVII of 1969) and also read with clause (b) of section 43 of the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997), the Securities and Exchange Commission of Pakistan, with the approval of the Federal Government, hereby makes the following rules, namely:-

The Margin Trading Rules, 2004

1. (1) These rules may be called the Margin Trading Rules, 2004. (2) These shall come into force at once.

2. Definitions.__ (1) In these rules unless there is any thing repugnant in the subject or context,(a) Act means the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997);

(b) approved securities means shares of listed companies and government securities deposited as margin and approved by the Stock Exchange for the purpose of margin trading and financing; (c) bank means a banking company as defined in the Banking Companies Ordinance, 1962 (LVII of 1962); (d) broker means any person engaged in the business of effecting transactions in securities for the account of others and is registered with the Commissio n; (e) central depository means a central depository as defined in clause (ca) of section 2 of the Securities and Exchange Ordinance, 1969 (XVII of 1969), and registered with the Commission under section 32A of the Ordinance; (f) client means a person who executes margin agreement to

borrow money from a broker to buy securities as specified by the Stock Exchange for the purpose of margin trading; (g) Commission means the Securities and Exchange Commission of Pakistan established under the Securities and Exchange

Commission of Pakistan Act, 1997 (XLII of 1997); (h) DFI means any institution as notified under section 3A of Banking Companies Ordinance 1962 (LVII of 1962); (i) financial institution means a Bank or DFI or NBFC; (j) margin means the amount of cash and approved securities deposited as security by a client as a percentage of the current

market value of the securities held in a margin account for the purpose of margin financing and margin trading as provided in these rules; (k) margin account means an account maintained with the broker, which records transactions of margin trading; (l) margin agreement means the agreement between the broker and his client for the administration of margin account for the purpose of margin trading; (m) maintenance margin means the minimum amount of margin that must be maintained by a client in a margin account; (n) margin financing means financing to the client by the broker for the purpose of margin trading; (o) margin trading means the buying of securities by the broker for his client through margin financing; (p) margin call means a notice issued in writing by a broker to his client in the form of a letter by courier or registered post or fax or by hand subject to acknowledgement or by electronic mail (with the onus on the broker to prove issuance of such notice) requiring the client to provide additional margin in order to keep maintenance margin; (q) net capital means net capital as defined under clause (d) of rule 2 of the Securities and Exchange Rules, 1971;

(r) NBFC means Non Banking Finance Company as defined in the Non Banking Finance Companies (Establishment and Regulation) Rules 2003 notified vide SRO 310(I)/2003 dated the 1st April, 2003; (s) Ordinance means the Securities and Exchange Ordinance, 1969 (XVII of 1969); (t) rules means the Margin Trading Rules 2004; and (u) trustee means a financial institution or a central depository having legal title to securities, and holding such securities in trust for the benefit of another person or entity and owes a fiduciary duty to that beneficiary.

(2)

All other words and expressions used but not defined in these rules

shall have the same meanings as are assigned to them in the Companies Ordinance, 1984 (XLVII of 1984) and the Securities and Exchange Ordinance, 1969 (XVII of 1969).

3.

Pre-requisite- (1)

Margin financing and margin trading shall be

carried out by only those brokers who are registered with the Commission and meet the minimum net capital and capital adequacy requirements.

(2) The Commission may fix from time to time the capital adequacy requirements for margin financing and margin trading as provided in subrule (1) of rule 3 in consultation with the Stock Exchanges.

(3) Margin trading shall be permissible only in scrips fixed by the Commission in consultation with the Stock Exchanges and shall be subject to a maintenance margin as fixed by the Commission in consultation with the Stock Exchanges.

4.

Margin

agreement (1)

The broker shall execute a margin

agreement with a person who intends to be his client for the purpose of margin financing and margin trading. (2) The margin agreement shall contain, inter alia, provisions which authorize the broker to :

(a)

mortgage,

pledge

or

hypothecate

the

securities

deposited or bought on behalf of client by the broker, for a sum not exceeding the outstanding balance in the margin account;

(b)

use his discretion and on best effort basis to sell or dispose of any or all the collateral, in any lawful manner in order to meet the fixed margin requirements as are specified in rule 6; and

(c)

extend margin trading and margin financing facilities to the client up to an approved limit subject to the range fixed by the Commission in consultation with the Stock Exchanges under sub rule (3) of rule 6.

5. Restrictions .- No broker shall extend margin trading and margin financing facilities to the following persons, namely:(i) any of its partners, directors, agents or employees; (ii) any firm in which any of its partners, directors, agents or employees is interested as a partner, director, agent, employee or guarantor; (iii) any company in which any of its partners, directors, agents or employees is interested as partner, director, agent, employee or guarantor; (iv) any company in which any of its partners, directors, agents or employees hold shares except:

a) where its partners, directors, agents or employees hold less than five per cent of the issued share capital of that company; and

b) in respect of any listed company, where a partner, director, agent or employee of the broker holds directly or indirectly less than five per cent of the issued share capital of that company;

(v) any individual on whose behalf any of its partners, directors, agents or employees has provided a guarantee; and (vi) any other person as may be fixed by the Commission.

Explanation.- For the purposes of this clause the term director or employee shall include the spouses, parents or children of the director or employee or partner or agent.

6.

Margin maintenance requirements.- (1)

The broker and

client shall ensure that maintenance margin in the margin account shall be maintained at all times. If as a result of market fluctuations, the value of the deposited margin falls below the maintenance margin level, the broker shall be required to give his client a margin call. (2) If the client fails to deposit additional cash or securities as a

margin within one business day of the margin call, the broker shall have absolute discretion without notice to such client to liquidate his margin account, including the securities deposited or purchased and carried in such account, to the extent that the margin is maintained at the required level.

(3)

Limit of margin financing: The amount of margin financing

facility that a broker may extend to any single client shall not be more than a range fixed by the Commission in consultation with the Stock Exchanges. (4) The Commission may specify in consultation with the Stock

Exchanges a range within which separate limits may be fixed for individual and corporate clients.

Explanation.- For the purposes of this clause in computing the total amount of margin financing and margin trading facilities given to any single client the term single client is defined as follows:

(a)

where such single client is an individual, the margin financing and margin trading facilities shall be deemed to include the margin financing and margin trading facilities given to the individual, spouse, parents or children of the individual, the partnership firm of which he is a partner, any partner of the individual, the spouse parents or children of that partner and all the companies over which the individual exercises control. Furthermore, for the purpose of this clause, an individual is deemed to exercise control over a company if the individual or the individuals spouse, severally or jointly:-

(i)

holds, directly or indirectly, more than fifty one per cent of the shares of that company;

(ii)

has the power to appoint, or cause to be appointed, a majority of the directors; or

(iii) has the power to make, or cause to be made, decisions in respect of the business or administration of that company, and to give effect to such decisions, or cause them to be given effect to; and

(b)

w here such single client is a company, any financing and margin

trading facilities extended to the company and its associated companies shall be deemed to be margin financing and margin trading facility extended to such a single client.

7. Deposit of margin.- (1)

The credit amount of margin accounts of

clients shall be kept by the broker in his separate bank account titled Client Margin Account and shall not be used by the broker for his own business. (2) The securities either deposited as margin or purchased on margin

financing shall be kept by the broker in a separate central depository account and may be deposited, pledged in favour of the financial institution in accordance with sub rule (2) of rule 4 of the Rules and this central depository account shall be used only for the purpose of margin trading. (3) The deposit of any government security as margin of a client shall

be used only for the purpose of margin trading.

Provided, that the provisions of rule 7 above shall not apply in the case of a financial institution providing financing directly to clients.

However, if the financial institution is a member of a Stock Exchange and registered with the Commission as a broker, it shall comply with sub rule (1) and (2) of rule 7.

8. Withdrawal.-

A client may only withdraw from his margin account,

sales proceeds or any part thereof in cash and any collateral for the time being deposited into his margin account, provided that the value of the margin deposit in the said margin account does not fall below maintenance margin after such withdrawal. the

9. Valuation of collaterals.- The collateral that a client may deposit into his margin account and the method of valuation thereof shall be limited to the following, namely :-

(a) for securities quoted on the Stock Exchange the value shall be based on the last quoted price of the securities on the preceding market day at the Exchange ; and (b) for government securities the value shall be based at the last done price on the preceding day.

10.

Limit of collective outstanding balances.- (1)

The broker

shall ensure that the aggregate outstanding balances, in the margin accounts maintained by all clients of a broker shall not exceed collectively the fixed level as provided in sub rule (2).

(2) The aggregate outstanding balances in the margin accounts maintained by all clients of a broker shall not exceed collectively a level as may be fixed by the Exchange and shall be linked to the capital adequacy requirements with the approval of the Commission.

11. Administrative, operational and reporting requirements.- (1) The broker shall ensure that the margin maintenance requirements specified under these rules are complied with at all times.

(2) The broker shall report and disclose the value of margin transactions to the Stock Exchange as under:

(a)

Daily: number of shares traded daily on margin, traded value, amount of margin financing provided to clients, value of collateral against margin financing; and

(b)

Weekly: client wise weekly report (indicating clients codes only) of total shares traded on margin, traded value, amount of margin financing provided to clients, value of collateral against margin financing, loans taken from banks by the broker for margin trading.

(3) If the Stock Exchange is of the opinion that the broker has extended margin financing to its client to a level which may cause problems for the broker to honour its obligation to the Exchange or cause systemic risk for the market, the Stock Exchange may order the broker to do inter alia the following, namely:-

(a)

reduce the outstanding position of client to a level within the time specified by the Exchange;

(b)

prohibit the broker from allowing client to trade on margin; and

(c)

any other action the Stock Exchange may deem fit and appropriate.

12.

Enhancement

and

reduction

of

margin

maintenance

requirements.-

The Commission may enhance or reduce the margin

maintenance requirements in consultation with the Stock Exchanges as deemed necessary and appropriate for reasons to be recorded in writing on a case-to-case basis.

13. Internal procedures for granting margin financing and margin trading facilities by Broker .- (1) The Stock Exchanges shall make the detailed regulations subject to prior approval of the Commission for the brokers relating to grant of margin financing and margin trading facilities in relation to any margin account.

(2) The Stock Exchange s shall ensure implementation of the regulations as specified in sub-rule (1) of rule 13.

(3) In particular and without prejudice to the generality of the foregoing powers, such regulations may provide inter alia for any of the following matters, namely:-

a) detailed procedures to process applications for margin financing facilities (application forms for margin financing to be specified by the Stock Exchanges with the prior approval of the Commission); b) criteria to assess the credit risk of a client; c) documentation in respect of margin financing and margin trading facilities extended to a client; d) an effective monitoring system; and e) taking disciplinary action and fixation of penalty in case of violation of the regulations.

14.

Non compliance of margin trading requirements.- (1) If a

broker does not comply with any provision of the Ordinance, these Rules or any direction of the Commission under the Ordinance or the Act relating to margin trading, the Commission, may suo moto or on a complaint from the Stock Exchange or any person and after giving him an opportunity of hearing, by order,

(a) direct the broker to pay a fine not exceeding hundred thousand rupees per default ; and (b) Suspend the membership of the broker.

[No.SMD/SE/2(72)2003] (Mohammad Hayat Jasra) Executive Director

COMMODITY EXCHANGE AND FUTURES CONTRACTS RULES SRO279 (I)/2005, Islamabad, the 15th March, 2005.- In exercise of the powers conferred by section 33 of the Securities and Exchange Ordinance, 1969 (XVII of 1969), Federal Government, is pleased to make the following rules, namely.-

1.

Short title and commencement.- (1)These rules may be called the Commodity Exchange and Futures Contracts Rules, 2005 (2) They shall come into force at once.

2.

Definitions.- (1)In these rules, unless there is anything repugnant in the subject or context, (a) Act means the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997) (b) Broker means any person who is registered with the Commission for the purpose of engaging in the business of effecting transactions in Commodity Futures Contract for the account of others;

(c) DELETED
(d) Exchange means a Commodity Exchange as defined in the Securities and Exchange Ordinance, 1969 (XVII of 1969); (e) Member means a person admitted by the Exchange as a Member of the Exchange but it does not denote a shareholder or equity holder of the Exchange; (f) Ordinance means the Securities and Exchange Ordinance, 1969 (XVII of 1969). (2) The words and expressions used but not defined in these rules shall have the same meaning as are assigned to them in the Ordinance, the Act and the Companies Ordinance, 1984 (XLVII of 1984).
Page:

3. 4. 5. 6.

No person to operate without registration - DELETED Cancellation of registration, etc. - DELETED Audit of accounts of the Exchange.- DELETED Books of account and other documents to be maintained and preserved by the Exchange.- DELETED.

7. 8. 9.

Submission of annual report by an Exchange.- DELETED. Submission of periodical returns.-DELETED Members not to engage in business without registration. - No member shall act as a broker to deal in the business of effecting transactions in the Commodity Futures Contract unless he is registered with the Commission under these rules.

10.

Application for registration as a broker. - (1) A Member desirous of acting as a broker shall make an application to the Commission in a form specified by the Commission from time to time, for grant of a certificate of registration through the Exchange of which he is a Member. (2) An application for registration under sub-rule (1) shall be submitted along

with a fee as specified by the Commission from time to time (3) The Exchange shall forward the application to the Commission within

fourteen days from the date of its receipt.

11. Eligibility for registration. (1) A person shall be eligible for registration as a broker under these rules, if he(a) is a Member of the Exchange; (b) is not less than twenty-one years of age; (c) is a citizen of Pakistan; (d) has at least passed graduation or equivalent examination from an
Page:

institution recognized by the Government; Provided that the Commission may relax the educational qualification in suitable cases on merit having regard to the applicants experience; (e) is not a lunatic or a person of unsound mind; (f) has not been convicted of an offence involving fraud or breach of trust; (g) has not been adjudicated as insolvent or has suspended payment or has compounded with his creditors; (h) has experience of not less than five years in the business of buying, selling or dealing in commodities, Commodity Futures Contracts or other securities; (i) has not been a director of a brokerage company which has been convicted of an offence concerning brokerage; (j) has not defaulted in payment of dues at a clearing house; (k) has not defaulted in compliance with the provisions of the Ordinance, the Act, and the rules and regulations made hereunder; (l) is not in default on settlement of an investor complaint where such complaint has been adjudicated by an exchange or a committee of an exchange or the Commission; (m) has complied with the directives of the Commission in respect of business conduct, dealings with clients and financial prudence; and (n) has the minimum net capital and minimum net worth as determined by the Exchange and approved by the Commission from time to time. (2) The applicant shall remain in compliance with the requirements of sub-rule (1) at all times and inform the Commission immediately when he is noncompliant with any of the terms and conditions.
Page:

(3)

Every applicant which is a corporate entity shall have at least one director who will satisfy the requirements set forth under sub-rule (1) above, provided that net worth and net capital of the corporate entity are used to fulfill the requirements set out under sub-rule (1) n.

12.

Certificate of registration. - (1) The Commission, if it is satisfied that the applicant is eligible for registration as a broker, and that it shall be in the interest of the commodity market to do so, may grant certificate of registration to the applicant in accordance with a format specified by the Commission from time to time. (2) (3) The certificate of registration of a broker shall be valid for one year. The Commission shall send an intimation of registration under sub-rule (1) to the concerned Exchange. (4) No application made under sub-rule (1) of rule 11 shall be refused except after giving an applicant a reasonable opportunity of being heard. (5) In case the Commission refuses the grant of certificate of registration to an applicant after providing an opportunity of being heard under sub-rule (4), the decision shall be communicated to the applicant as well as the concerned Exchange within fourteen days of the last hearing given to the applicant, stating therein the grounds for refusal. (6) An applicant aggrieved by the decision of the Commission under sub-rule (5) may apply, within a period of thirty days from the date of receipt of such intimation, to the Commission for review of its decision.

13.

Effect of refusal for registration. - A person whose application for grant of a certificate of registration as a broker has been refused by the Commission from and on the date of receipt of the decision under sub-rule (5) of rule 13 shall not deal in Commodity Futures Contracts as a broker.

Page:

14.

Renewal of registration.-(1) the certificate of registration shall be renewable on payment of fee as specified by the Commission from time to time. (2) The broker desiring renewal of his registration with the Commission, for this purpose shall submit an application through the Exchange along with a net capital certificate and an undertaking confirming that the broker remains compliant with the requirements provided under rule 11. (3) A member whose certificate of registration expires shall not deal in Commodity Futures Contracts as a broker. (4) A member whose application for renewal has been refused by the commission shall not deal in Commodity Futures Contracts as a broker from and on the date of receipt of the decision under sub-rule (5) of rule 12.

15.

Suspension of registration. - Where the Commission is of the opinion that a broker(a) Has failed to remain in compliance with any conditions subject to which certificate of registration was granted under these rules; (b) has otherwise failed to comply with any requirement of the Act or the Ordinance or of any rules or directions made or given thereunder; (c) has contravened the rules and regulations of the Exchange; (d) has failed to follow any requirement of the code of conduct as laid down under these rules; (e) has failed to comply with the directives of the Commission in respect of business conduct, dealings with clients and financial prudence; (f) has failed to furnish any information related to his transactions in Commodity Futures Contract as may be required by the Commission; (g) has failed to submit periodical returns as required by the Commission;

Page:

(h) has furnished wrong or false information; (i) has failed to settle an investor complaint where such complaint had been adjudicated by an Exchange or a committee of an Exchange or the Commission; (j) has not co-operated in any enquiry or inspection conducted by the Commission; (k) has indulged in manipulating price rigging or cornering activities in an Exchange; (l) his financial position has deteriorated to such an extent that the Commission is of the opinion that his continuance in the business of dealing in Commodity Futures Contracts shall not be in the interest of investors; or (m) has been suspended by an Exchange, The Commission may, if it considers necessary in the public interest so to do, by order in writing:(i) suspend the registration of a broker for such period as may be specified in the order; or (ii) impose on a broker a fine not exceeding one hundred thousand rupees: Provided that the broker shall be provided an opportunity of being heard before passing order under sub-clause (i) or sub-clause (ii). 16. Cancellation of registration. - Where the Commission is of the opinion that (a) the cause of suspension of registration under rule 15 continues during the period of such suspension, or (b) a broker whose registration has been suspended(i) is engaged in insider trading, market manipulation or any other unfair practice or market abuse;
Page:

(ii) (iii) (iv)

has been found guilty of fraud, or convicted of a criminal offence; has his membership cancelled by an Exchange; or has not complied with a directive of the Commission.

The Commission may, if it considers necessary for the protection of investors so to do, by order in writing, cancel the registration of the broker; Provided that no such order shall be made except after giving the broker an opportunity of being heard. 17. Automatic cancellation of registration.- (1) A certificate of registration granted to a broker under rule 12 shall stand cancelled automatically if he, (a) ceases to be a Member of an Exchange; (b) is declared defaulter by an Exchange and is not re-admitted to Membership within a period of six months from such declaration; (c) surrenders Membership of an Exchange; (d) is declared insolvent by a Court; (e) voluntarily surrenders certificate of registration to the Commission; or (f) is wound up by an order passed by a Court. (2) Where a certificate of registration stands cancelled under sub-rule (1), the concerned Exchange or clearing house shall intimate the Commission immediately about such cancellation. 18. Broker, etc., to clear liabilities.- Notwithstanding the refusal, suspension or cancellation of a certificate of registration under rules 13, 15, 16 or 17, a broker shall be responsible for clearing all his obligations upto the date on which he has been working as broker. 19. General obligations and responsibilities.- The brokers shall be responsible to keep and maintain the books of accounts, records and documents as specified in the Ordinance, the Act, and rules.
Page:

20.

Brokers to abide by code of conduct. - A broker holding a certificate of registration under these rules shall abide by the following code of conduct as provided in the Schedule.

21.

System Audit. - A broker shall undergo an annual system audit in accordance with the directions issued by the Commission from time from time.

22.

Maintenance of Books of account, etc by brokers.- (1) Every broker shall prepare and maintain the following books of account and other documents, in electronic or manual form, that will disclose a true, accurate and up to date position of the business namely;

(a) journal (or other comparable record), cash book and any other books of original entry, forming the basis of entries into any ledger, the books of original entry being such as containing daily record of all orders for purchase or sale of Commodity Futures Contracts, all purchases and sales of Commodity Futures Contracts, all receipts and deliveries of a commodity and all other debits and credits; (b) ledgers (or other comparable records) reflecting asset, liability, reserve, capital, income and expense accounts; (c) ledgers (or other comparable records) reflecting securities in transfer, securities borrowed and securities loaned and Commodity Futures Contracts bought or sold, of which the delivery is delayed; (d) record of all balance of all ledger accounts in the form of trial balances to be prepared at least once at the end of the six months of every year of account; (e) record of transactions with the banks;
Page:

(f) written consent of customers in respect of contracts entered; (g) duplicates or counterfoils of memos of confirmation or contract notes issued to customers. (2) The books of accounts and other documents referred to in sub-rule (1) shall be preserved for a period of not less than five years. 23. Registration of Commodity Futures Contract.- (1) Every Commodity Futures Contract shall be registered with the Commission under these rules to become eligible for dealing on an Exchange. (2) An Exchange shall submit an application for registration of a standardized Commodity Futures Contract with the Commission. (3) Upon receipt of an application under sub-rule (2) the Commission, if it is satisfied after making such inquiry, as it may consider necessary that the application fulfills the conditions as it may specify in this behalf, register the standardized Commodity Futures Contract for dealing on the Exchange. (4) If after the registration of the standardized Commodity Futures Contract the Commission finds the application is deficient in any material respect or that the Exchange has failed to comply with any prescribed condition or requirement and/or that the continued registration of the standardized Commodity Futures Contract would not be in the public interest, the Commission may by order either require the Exchange to correct the deficiency or comply with the prescribed condition or requirement within the time specified in the order or amend the specification of any standardize Commodity Future Contract. (5) No application submitted under sub-rule (2) shall be refused and no registration of standardized Commodity Futures Contract shall be revoked unless the Exchange has been given the opportunity of being heard.
Page:

(6)

The Commission or an Exchange may, if it considers it to be in the interest of the trade or in the public interest so to do, by order recording the reasons, suspend for a period not exceeding sixty days, the trading of any Commodity Futures Contract and may from time to time, for the said reasons and in the said manner extend the suspension for further period not exceeding sixty days at any time.

24.

Restriction on dealings in Commodity Futures Contracts.- (1) No person shall transact any business in Commodity Futures Contract on any Exchange unless he is a broker thereof. (2) No member shall act as a broker in a Commodity Futures Contract on an Exchange outside such Exchange. (3) Nothing in this rule shall be deemed to prohibit an Exchange from acting as a central counterparty to trades on the Exchange.

25.

Prohibition of fraudulent acts, etc._ (1) No person shall, for the purpose of inducing, dissuading, effecting, preventing or in any manner influencing or turning to his advantage, the sale or purchase of any Commodity Futures Contracts, directly or indirectly,-

(a) employ any device, scheme or artifice, or engage in any act, practice or course of business, which operates or is intended or calculated to operate as a fraud or deceit upon any person; or (b) make any suggestion or statement as a fact of that which he does not believe to be true; or (c) omit to state or actively conceal a material fact having knowledge or belief of such fact; or (d) induce any person by deceiving him to do or omit to do anything which he would not do or omit if he were not so deceived; or
Page:

10

(e) do any act or practice or engage in a course of business, or omit to do any act which operates or would operate as a fraud, deceit or manipulation upon any person, in particular(i) make any fictitious quotation;

(ii) create a false and misleading appearance of active trading in any Commodity Futures Contracts; or (iii) directly or indirectly effect a series of transactions in any Commodity Futures Contracts creating the appearance of active trading therein or of raising of price for the purpose of inducing its purchase by others or depressing its price for the purpose of inducing its sale by others. 26. Prohibition of false statements, etc. - No person shall, in any document, paper, accounts, information or explanation which he is, by or under these rules, required to furnish, or in any application made under these rules, make any statement or give any information which he knows or has reasonable cause to believe to be false or incorrect in any material particular. 27. Maintenance of secrecy. - No person shall, except with the permission of the Commission, communicate or otherwise disclose to any person not legally entitled thereto any information which has been entrusted to him or which he has obtained or to which he had access in the course of the performance of any functions under these rules.

28. The Commissions power to call for information. - Every Exchange and every director, officer, members or brokers thereof shall furnish such documents, information or explanation relating to the affairs of the Exchange, or as the case may be, relating to the business on the Exchange of such director, officer, member or broker as the commission may, at any time, require in order by writing.
Page:

11

29. The Commissions power to give directions.- The Commission may, if it is satisfied that it is necessary or expedient so to do in the public interest or in the interest of the capital market, by order in writing, give directions to the Exchange, any director, officer, member or broker thereof. 30. Enquiry.-DELETED . 31. Advisory Committee.- DELETED 32. Prohibition on Exchange Deals.- (1) No person who is employed by an Exchange or who has been so employed by an Exchange at any time during the preceding six months shall, directly or indirectly, deal in any Commodity Futures Contract traded on or cleared by the Exchange of which he or she is or has been at any time during the preceding six months, an employee. (2) No person shall deal on an Exchange in any commodity underlying Futures Contract or cause any other person to deal in any commodity underlying Futures Contract, if he or she has information which (a) is not generally available ; (b) Would if it were so available, be likely to materially affect the price of such Commodity Futures Contract; or (c) relates to any transaction (actual or contemplated) involving such Commodity underlying Futures Contracts. (3) The Commission or the Exchange may, from time to time, prohibit any person from such dealings in Commodity Futures Contract, which the Commission or the Exchange determines to be detrimental to the interest of the investors in general. Such dealings if the Exchange so prohibits shall require the approval of the Commission. 33. Liability for Contravention of rule 32.- (1) Where a person contravenes the

provisions of rule 32, the Commission may, by a notice in writing, ask such person to
Page:

12

show cause for compensating any person who has suffered loss for such contravention and initiating proceedings against him. (2) Where a person to whom a notice has been issued under sub-rule (1) satisfy the Commission that (a) any dealing on Exchange or communication of any information was not made with the intent of making any profit or causing a loss to any person or company; or (b) the dealing on Exchange or any information was communicated in good faith in discharge of his or her legal responsibilities the Commission may withdraw such notice. (3) Where the Commission is not satisfied with the explanation of the person given the response to the show cause notice served upon him under sub-rule (1), it may direct him or her to pay any other person who has suffered loss for any contravention under rule 35, compensation which shall not be less than the amount of loss sustained by any other person as a result of such dealing or communication of information. Provided that where the person who has suffered any loss for any contravention of rule 35 is not determined, the amount of compensation equivalent to the gain or the loss avoided by such contravention, shall be payable to the Commission. (4) Any compensation payable under this section shall be recoverable as arrears of land revenue.

Page:

13

The Gazette of Pakistan Extraordinary PART II GOVERNMENT OF PAKISTAN

FINANCE DIVISION NOTIFICATIONS Islamabad, the 30th November, 2004. S.R.O. 975 (I)/2004. In exercise of the powers conferred by sub-clause (viii) of clause (a) of section 282A of the Companies Ordinance, 1984 (XLVII of 1984), the Federal Government is pleased to specify Pension Fund Scheme Business authorized under the Voluntary Pension System Rules, 2004, to be a form of business.

Islamabad, the 27th January, 2005. S.R.O. 87(I)/2005. In exercise of the powers conferred by sub-clause (viii) of clause (a) of section 282A of the Companies Ordinance, 1984 (XLVII of 1984), the Federal Government is pleased to direct that the following amendment shall be made in Notification No. S.R.O. 975(I)/2004, dated the 30th November, 2004, namely: In the aforesaid Notification, for the figure 2004 the figure 2005 shall be substituted.

S.R.O. 88(I)/2005. In exercise of the powers conferred by section 282B of the Companies Ordinance, 1984 (XLVII of 1984), the Federal Government is pleased to make the following rules, the same having been previously published vide S.R.O. 976(I)/2004 dated the 30th November, 2004, as required by section 506 of the said Ordinance, namely: 1. Short title and commencement. - (1) These rules may be called the Voluntary Pension System Rules, 2005. (2) They shall come into force at once. 2. Definitions. (1) In these rules, unless there is anything repugnant in the subject or context, (a) accounting period means the period ending on an accounting date and commencing from the establishment of the pension fund or from the end of the last accounting period, as the case may be; (b) annuity means a series of payments of set frequency; 1

(c) asset management company means a company which has been licenced by the Commission under rule 5 of the Non-Banking Finance Companies Rules, 2003, to offer investment schemes under trust deeds and to issue redeemable securities; (d) auditor means a person qualified under the provisions of section 254 of the Ordinance to act as an auditor of a company; (e) central depository company means a company formed to establish and operate a system for the central handling of securities, whether listed or not on a stock exchange, whereby such securities are deposited with and held in custody by, or registered in the name of, the company as a nominee for the depositors and dealings in respect of such securities are effected by means of entries in securities accounts without the physical delivery of scrips and which has been registered under section 32-A of the Securities and Exchange Ordinance, 1969 (XVII of 1969); (f) Commission" means the Securities and Exchange Commission of Pakistan established under the Securities and Exchange Commission of Pakistan Act, 1997(XLII of 1997); (g) company means a life insurance company or an asset management company registered as a Pension Fund Manager; (h) "connected person", in relation to a company registered as a Pension Fund Manager, means;(i) any person or company beneficially owning, directly or indirectly, ten per cent or more of ordinary share capital of that company, or being able to exercise, directly or indirectly, ten per cent or more of the total voting power in that company; any person or company controlled by a person who or which meets one or both, of the descriptions given in sub-clause (i); any member of the group of which that company forms part; or any director, officer and employee of that company or of any of their connected persons as specified in sub-clauses (i), (ii) and (iii) or any body providing service or exercising power of that company; Explanation.- The words director, officer and employee shall include their spouse, lineal ascendants and descendants, brothers and sisters; (i) constitutive document means the principal document governing the formation of the pension fund, and includes the trust deed of a pension fund and all material agreements; (j) contribution means an amount as may be voluntarily determined by an 2

(ii)

(iii) (iv)

individual payable annually, semiannually, quarterly, or monthly to one or more Pension Fund Managers and held in one or more individual pension accounts of a participant, subject to any specified minimum limit; (k) Form means a Form annexed to these rules; (l) life insurance company means a company registered under the Insurance Ordinance, 2000 (XXXIX of 2000), to transact life insurance business, and includes the State Life Insurance Corporation of Pakistan; (m) net asset value, in relation to a pension fund, means the excess of assets over liabilities of the pension fund, such excess being computed in the manner specified hereunder or as may be specified by the Commission from time to time, namely :(i) A security listed on a stock exchange shall be valued at its last sale price on such exchange on the date as of which it is valued, or if such exchange is not open on such date, then at its last sale price on the next preceding date on which such exchange was open and if no sale is reported for such date, the security shall be valued at an amount not higher than the closing asked price nor lower than the closing bid price. Where price is not truly representative of the market value because it is thinly traded or not traded, the trustee with the concurrence of the auditor may prescribe an alternate method; an investment purchased and awaiting payment against delivery shall be included for valuation purposes as a security held, and the cash account of the company shall be adjusted to reflect the purchase price, including brokers commission and other expenses incurred in the purchase thereof but not disbursed as of the valuation date; an investment sold but not delivered pending receipt of proceeds shall be valued at the net sale price; the value of any dividends, bonus, shares or rights which may have been declared on securities in the portfolio but not received by the company as of the close of business on the valuation date shall be included as assets of the company, if the security upon which such dividends, bonus or rights were declared is included in the assets and is valued ex-dividend, ex-bonus or ex-rights, as the case may be; debt security not listed or quoted on a stock exchange shall be valued at fair value determined to the satisfaction of the trustee; interest accrued on any interest-bearing security in the portfolio shall be included as an asset of the company if such accrued interest is not otherwise included in the valuation of the security; 3

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

any other income accrued up to the date on which computation was made shall also be included in the assets; and all liabilities, expenses, taxes and other charges due or accrued up to the date of computation which are chargeable under these rules, other than the paid-up capital of the company, shall be deducted from the value of the assets;

(viii)

(n) Ordinance means the Companies Ordinance, l984 (XLVII of l984); (o) participant means any person on whose behalf contributions are made into one or more pension funds and held in one or more identifiable individual pension accounts managed by one or more Pension Fund Managers; (p) pension fund means a fund made up of sub-funds created from the contributions paid by the participants and would consist of all the assets for the time being held or deemed to be held by sub-funds and includes all income or investment returns thereon but excludes fees, charges and expenses related to the management of the investments of sub- funds; (q) Pension Fund Manager means an asset management company or a life insurance company duly authorized by the Commission to efficaciously manage the contributions made by or on behalf of participants in pension fund and meet such other conditions as may be prescribed from time to time by the Commission; (r) "records" include ledgers, day books, cash books and all other manuals or magnetic records used in the business of a Pension Fund Manager; (s) regulations means regulations made by the Commission under these rules; (t) Schedule means the Schedule to these rules; (u) stock exchange means any stock exchange registered under the Securities and Exchange Ordinance, 1969 (XVII of 1969); (v) trust means a trust established by a deed under the provisions of the Trusts Act, 1882 (II of 1882); (w) unit means an undivided share in a sub-fund of the pension fund, and (x) unlisted security means a security not listed or quoted on a stock exchange. (2). The words and expressions used but not defined in these rules shall have the same meaning as are assigned to them in the Companies Ordinance, 1984 (XLVII of 1984), the Securities and Exchange Ordinance, 1969 (XVII of 1969), the Insurance Ordinance, 2000 (XXXIX of 2000), and the Non-Banking Finance Companies Rules, 2003. 3. No company to commence business w ithout registration. (1) No company shall 4

commence business as a Pension Fund Manager unless it is registered with the Commission under these rules. 4. Eligibility for registration. - A company proposing to commence business as a Pension Fund Manager shall be eligible for registration under these rules if,(a) it is a life insurance company or an asset management company; (b) the company is financially solvent and is fully complying with all the requirements as may be necessary according to the applicable laws, rules and regulations and having such credit rating as may be determined by the Commission from time to time; and (c) each of its directors, chief executive and chairman of the Board of Directors, officer or employee fulfills the terms and conditions me ntioned in the fit and proper test as may be specified by the Commission from time to time. 5. Registration as Pension Fund Manager. (1) A company eligible for registration may make an application in Form I to the Commission for registration under these rules along with a non-refundable processing fee amounting to fifty thousand rupees. (2) The Commission may, after making such inquiry and after obtaining such further information, as it may consider necessary, and after satisfying itself that the applicant is eligible for registration and that it would be in the interest of the participants and capital market so to do, grant a certificate of registration to such company in Form II. (3) A monitoring fee shall be charged annually at the rate as may be prescribed by the Commission from time to time. Such fee shall be paid by the Pension Fund Manager from his own account and it shall not be charged to the pension fund. (4) In case the company fails to commence pension business within six months from the date of registration, its registration shall be liable to be cancelled unless the period has been extended by the Commission, on receipt of application submitted by the company before the expiry of six months. 6. Cancellation of registration as Pension Fund Manager. (1) Subject to sub-rule (2), where the Commission is of the opinion that a Pension Fund Manager has contravened any provision of these rules, or has otherwise neglected or failed to comply with any order or direction of the Commission or with any requirement of these rules or has failed or neglected to carry out its duties to the satisfaction of the trustee, or the Commission, as the case may be, considers that it would be in the interest of the participants so to do, the Commission may, on its own motion or on the report of the trustee, by order in writing;(a) cancel or suspend the registration of the company; (b) remove the company managing the pension fund; (c) issue, cease and desist orders to the company; (d) order compensation to be paid to the participants; 5

(e) ban defaulters to be employed within the security market temporarily or permanently; (f) impose fine; or (g) take any combination of the above mentioned actions. (2) No such orders shall be made under sub-rule (1) except after offering the company an opportunity of being heard. (3) If the registration of the company as a Pension Fund Manager is cancelled under subrule (1), the Commission shall appoint another company to act as Pension Fund Manager for the pension fund being managed by the said company and the Pension Fund Manager whose licence has been cancelled shall not be eligible to be registered as a Pension Fund Manager again. (4) The company may apply to the Commission for the cancellation of its registration as a Pension Fund Manager if it has, with the prior approval of the Commission, transferred management of the pension fund being managed by it to another Pension Fund Manager. 7. Obligations as Pension Fund Manager. - (1) A Pension Fund Manager shall,(a) be obliged to manage the assets of the pension fund in the interest of the participants in good faith and to the best of its ability and without gaining any undue advantage for itself or any of its related parties or its officers; (b) be responsible for the acts and omissions of all persons to whom it may delegate any of its functions as Pension Fund Manager, howsoever designated, as if they were its own acts and omission; (c) account to the trustee for any loss in value of the assets of the pension fund where such loss has been caused by its gross negligence, reckless or willful act or omission; (d) maintain at its principal office, proper accounts and records to enable a complete and accurate view to be formed of the assets and liabilities and the income and expenditure of the pension fund, all transactions for the account of the pension fund and contributions received by the pension fund and withdrawals by the participants including detail of withholding tax deducted at source and transfer or receipt of balances in the individual pension accounts of the participants to or from other Pension Fund Managers; (e) prepare and transmit an annual report, together with a copy of the balance sheet and income and expenditure account and the auditors report of the pension fund within three months of closing of the accounting period to the Commission and the participants, and the balance sheet and income and expenditure account shall comply with requirements as set out in Schedule I; (f) within one month of the close of the first, second and third quarter of its year of account of the fund, prepare and transmit to the participants and the Commission 6

a balance sheet as at the end of that quarter and a profit and loss account for that quarter, whether audited or otherwise, of the pension fund and the balance sheet and income and expenditure account shall comply with requirements as set out in Schedule I. The companies may, with the prior approval of the Commission, post the said quarterly accounts on their website; (g) maintain a register of participants of the pension fund and inform the Commission of the address where the register is kept; (h) appoint with the consent of the trustee, at the establishment of the pension fund and upon any vacancy, an auditor independent of the auditor of the company and the trustee and such auditor shall not be appointed for more than three consecutive years; (i) furnish to the Commission within one month of the close of any accounting period, (i) particulars of the personnel (executive, research and other) managing the pension fund; (ii) total number of participants; and (iii) such other information that may be prescribed by the Commission from time to time; (j) furnish to the Commission a copy of its annual report and half yearly report , together with copies of the balance sheet, profit and loss account, the directors report and the auditors report within two months of the close of its accounting year and within one month of its half year; (k) send an account statement as at the 30th June and the 31st December each year, within thirty days after the end of each date, to individual participants, giving detail of the amounts received or withdrawn and tax deducted and the number of units allocated and held, the current valuation of the units and suc h other information as may be specified by the Commission, free of charge. The participant shall however be entitled to receive any information, in respect of his account, at any time, on written application. Such information may also be posted on the website and furnished electronically, subject to prior approval of the Commission; and (l) send any other statement or certificate to the participants which may be necessary under these rules. 8. Restrictions for Pension Fund Manager. - No Pension Fund Manager shall,(a) merge with, acquire or take over management of any other pension fund unless it has obtained the prior approval of the Commission in writing to the scheme of such merger, acquisition or takeover; (b) pledge any of the securities held or beneficially owned by the pension fund except for the benefit of the pension fund subject to prior approval of the Commission; (c) accept deposits from another pension fund; 7

(d) make a loan or advance money to any person except in connection with the normal business of the pension fund; (e) participate in a joint account with others in any transaction; (f) apply any part of its assets to real estate provided that the company may purchase real estate for its own use out of its shareholders fund; (g) make any investment with the purpose of having the effect of vesting the management, or control, in the pension fund; and (h) employ as a broker, directly or indirectly, any of its director, officer or employee or a member of a family of such person which shall include spouse, parents, children, brothers and sisters and enter into transactions with any connected broker, which shall equal or exceed ten per cent or more of the brokerage or commission paid by the pension fund in any one accounting year: Provided that the Commission may, in each case on merits, permit the ten per cent to be exceeded if the connected broker offers advantages to the pension fund not available elsewhere. 9. Authorization of pension fund. (1) No Pension Fund Manager shall offer to any person, a pension fund unless the Commission has authorized the same. (2) A pension fund shall be in the form of a unit trust scheme. The pension fund being made up of an Equity sub- fund and a Debt sub- fund and other sub-funds, as may be allowed by the Commission from time to time. (3) An application for authorization of the pension fund shall contain information as specified in Form III and shall be accompanied by the following documents, namely :(a) a constitutive document, contents of which shall be in the form as set out in Schedule II; (b) an undertaking from Pension Fund Manager that it will invest or arrange the investment of seed capital of fifty million rupees for each sub-fund of the pension fund for a minimum period of three years or as may be determined by the Commission; Provided that the Commission may modify this requirement where the company registered as Pension Fund Manager has adequate solvency margin (if applicable) and the above average track record for the last three years of the annual return on the funds being managed by the said company; or such other conditions as would be in the interest of the participants and the capital market for reasons to be recorded in writing; and (c) non-refundable application fee of one hundred thousand rupees in the form of bank draft payable to the Commission. 8

10. De-authorization of pension fund. - (1) If a Pension Fund Manager do not wish to maintain the authorization of a pension fund it shall issue a three months notice to the participants about its intention not to ma intain the said authorization, with prior approval of the Commission. (2) If the Commission considers that further continuation of the authorization of the pension fund shall not be in the interest of participants, it shall issue a three months notice to the participants about the Commissions intention not to maintain such authorization: Provided that no such notice shall be served without offering an opportunity being heard to Pension Fund Manager. (3) The Pension Fund Manager shall not receive any contributions from any of the participants as from the date of issue of the notice as referred to in sub-rules(1) and (2). (4) In case of de-authorization under sub-rules (1) and (2), the Pension Fund Manager shall be required to wind-up the pension fund and transfer the individual pension accounts of the participants under his management to another Pension Fund Manager, with the approval of the Commission. 11. Remuneration payable to Pension Fund Manager. - (1) Subject to sub-rules (2) and (3), Pension Fund Manager shall be allowed to charge a maximum front-end fee (sales charge) of 3% of all the contributions received from any participant of the pension fund and an annual management fee of 1.5% of the average of the values of the net assets of the pension fund calculated during the year for determining the prices of the units of the sub-funds. (2) The rates of fees specified under sub-rule (1) may be reviewed by the Commission from time to time. (3) There shall be no front-end fee payable in the event of the transfer of the individual pension account from one Pension Fund Manager to another Pension Fund Manager. 12. Eligibility. All Pakistani nationals over the age of eighteen years who have a valid National Tax Number and are not employed in any position entitling them to benefits under any approved occupational pension scheme shall be eligible to contribute to the pension fund authorised under these rules: Provided that Pakistani nationals who were or are entitled to benefits under an approved occupational pension scheme, but are not entitled to benefits in respect of the current year of service, shall be eligible to contribute to the pension fund during that year. (2) Eligibility criteria may be reviewed by the Commission from time to time. 13. Requirements as to contributions. - (1) Eligible persons themselves as well as alongwith their employers, if any, shall be allowed to contribute into one or more pension funds, subject to the limits prescribed under the Income Tax Ordinance, 2001 (XLIX OF 2001).

(2) The maximum allowable amount of contribution within any financial year according to the Income Tax Ordinance, 2001 (XLIX OF 2001), can be paid in one lump sum or in instalments to one or more Pension Fund Managers during any fiscal year. (3) The Pension Fund Manager shall send an acknowledgement of receipt of the contribution to the participant or the employer, as the case may be, within one week of the receipt thereof. 14. Individual pension account. - (1) The Pension Fund Manager shall assign a distinct number to individual pension account held in the name of each participant. (2) The contribution received from any participant by the Pension Fund Manager on any working day shall be immediately credited to the individual pension account of the participant after deducting the front-end fees, and the amount in the individual pension account shall be used to purchase the units of sub- funds of the pension fund as the Commission may allow, at the net asset value notified by the Pension Fund Manager at the close of that working day. (3) The allocation of the contributions between the various sub- funds at the date of opening of individual pension account and on any anniversary thereafter, shall be in accordance with the policy to be prescribed by the Commission from time to time, hereinafter referred to as the prescribed allocation policy. (4) The amount of the contribution used for the purchase of the units of any sub- fund shall depend on such percentage as may be specified in the prescribed allocation policy selected by the participant. In the event of no allocation percentages being selected by any participant the Pension Fund Manger shall allocate the contributions among the various sub-funds within the prescribed allocation policy, as may be considered in the interest of the participant. (5) The Pension Fund Manager shall make reallocation of the units between the subfunds at least once a year to ensure that the allocation of units of all the participants are according to the percentages selected by the participants or where no selection has been made according to the prescribed allocation policy. (6) Individual pension account shall not be subject to any lien, pledge or encumbrance, attachment in the execution of a decree, nor shall it be chargeable or assignable; and any agreement to charge or assign an allowance shall be void, and on the bankruptcy of a participant, no sum shall pass to any trustee or person acting on behalf of his creditors. 15. Change of Pension Fund Manager by participant. - (1) Subject to sub-rules (2) and (3) participants shall be allowed to transfer his individual pension account with a particular Pension Fund Manager to another Pension Fund Manger. For this purpose the units shall be encashed at the net asset value of each sub- fund notified at the close of the working day corresponding to the date of transfer. (2) No charge whatsoever called shall be deducted for transfer of the individual pension account from one Pension Fund Manager to another Pension Fund Manager.

10

(3) The transferred amount shall be used to purchase the units of the sub- funds of the pension fund maintained by the new Pension Fund Manager at the net asset value notified at the close of the working day, of the receipt amount, on such percentage according to the prescribed allocation policy selected by the participant. (4) The transfer of individual pension account shall only take place on the anniversary date of opening of the individual pension account in the pension fund. The notice for the change of the Pension Fund Manager, specifying the name of the new Pension Fund Manager shall be sent by the participant at least thirty days before the relevant anniversary date. (5) In the event the Commission de-authorises any Pension Fund Manager, the transfer shall take place without any restriction thereon. (6) Policyholders having pension policies approved by the Commission under section 63 of the Income Tax Ordinance, 2001 (XLIX of 2001), and issued by life insurance companies before the 30th June, 2005, would be eligible to redeem their units and transfer the balance to an individual pension account with a Pension Fund Manager, subject to these rules. No charge whatsoever shall be deducted from such redemption amount. 16. Register of participants. - (1) The Pension Fund Manager shall maintain a register in respect of each participants individual pension account comprising the following information, namely :(a) distinctive account number; (b) the name, address, National Identity Card Number and National Tax Number of the participant; (c) complete record of the amount of contributions paid by the participants on different dates; (d) number of units of the sub-funds allocated and standing in the name of the participant from time to time; (e) the date at which the name of the participant was entered in respect of the units standing in his name; (f) any other information considered necessary; and (g) such information as may be specified by the Commission from time to time. 17. Retirement age. - (1) The retirement age for the participants shall be any age between sixty and seventy years. A notice shall be sent to the Pension Fund Manager at least thirty days before the chosen date of retirement. (2) If a participant suffers from any of the following disabilities, which render him unable to continue any employment he may, if he so elects, be treated as having reached the 11

retirement age at the date of such disability and all relevant provisions shall apply accordingly, namely :(a) loss of two or more limbs or loss of a hand and a foot; (b) total loss of eyesight; (c) total deafness in both ears; (d) very severe facial disfigurement; (e) total loss of speech; (f) paraplegia or hemiplegia; (g) lunacy; (h) advance case of incurable disease; or (i) wounds, injuries or any other diseases, etc, resulting in a disability due to which the participant is unable to continue any work. (3) An assessment certificate from the medical board approved by the Commission shall be required to confirm any of the disability specified in sub-rule (2). 18. Benefits on retirement. - (1) At the date of retirement of the participant all the units of the sub- funds to his credit shall be redeemed at the net asset value notified at close of the day of retirement and the amount due shall be credited to his individual pension account, which shall earn the applicable market rate of interest for such deposits. The participant shall then have the following options, namely: (a) to withdraw up to twenty- five per cent of the amount in his individual pension account, as cash; (b) to use the remaining amount to purchase an annuity from a Life Insurance Company of his choice; or (c ) to enter into an agreement with the Pension Fund Manager to withdraw from the remaining amount, monthly installments till the age of seventy-five years or earlier, according to an income payment plan, approved by the Commission. (2) At the expiry of the income payment plan according to clause (c) of sub-rule (1), the participant shall have no other option except to use the outstanding balance in his individual pension account to purchase an annuity from a Life Insurance Company, of his choice. (3) The annuity purchased may be single life, joint or survivor life, level (with or without guarantee period), increasing, investment- linked and retail price index linked or with any additional features as may be offered by the Life Insurance Companies. 19. Withdrawal of funds before retirement. - (1) A participant at any time before retirement shall be entitled to redeem the total or part of the units of the sub-funds to his credit in the individual pension account subject to the conditions laid down in the Income Tax Ordinance, 12

2001 (XLIX of 2001), from time to time. The withdrawals may be through single or multiple payments. (2) Withholding tax and tax penalty, if any, applicable to all such withdrawals shall be deducted by the Pension Fund Manager and the same shall be deposited in the Government treasury. 20. Benefits on death before retireme nt. - (1) In case of death of a participant before the retirement age, all the units of the sub-funds to his credit shall be redeemed at the net asset value notified at close of the day of intimation of death and the amount due shall be credited to his individual pension account, which shall earn the applicable market rate of interest for such deposits. (2) The total amount in the individual pension account of the deceased participant shall be divided among the nominated survivors according to the percentages specified in the nomination deed and each of the nominated survivor shall then have the following options, namely :(a) withdraw his share of the amount subject to the conditions laid down in the Income Tax Ordinance 2001 (XLIX of 2001); (b) transfer his share of the amount into his existing or new individual pension account to be opened with the Pension Fund manager, according to these rules; (c) use his share of the amount to purchase an annuity on his life from a Life Insurance Company, only if the age of the survivor is fifty- five years or more; or (d) use his share of the amount to purchase a deferred annuity on his life from a Life Insurance Company to commence at age fifty- five years or later. 21. Instructions from participant. All the instructions from a participant or his nominees or survivors with regard to this voluntary pension system shall be in writing. 22. Advertisements and invitations. - (1) Advertisements and other invitations to the public in Pakistan to invest in a pension fund, inc luding public announcements, shall be submitted to the Commission for approval prior to their issue. (2) The approval granted under sub-rule (1) may be varied or withdrawn by the Commission after giving an opportunity of being heard to the Pension Fund Manager. (3) Approval of an advertisement or invitation shall be valid for a period of sixty days from the date of approval provided that there is no change in the features of the pension fund for which the advertisement was approved. 23. Unit pricing. - (1) Every Pension Fund Manager shall notify the net asset value of a unit of each of the sub- funds of the pension fund managed by it, at the close of each working 13

day. The value of the units shall be published in a leading daily newspaper. The redemption of the units, wherever applicable, shall always be at the net asset value of the unit of each of the sub- funds. (2) The net asset value of the unit of each sub-fund shall be calculated on the basis of the sub- funds total net asset value divided by the number of units after making adjustments for fees and charges: Provided that the amount or method of calculation of such fees and charges shall be transparent and clearly disclosed in the constitutive document of the pension fund. (3) There shall be at least four dealing days per week. 24. Investment policy. - (1) The Pension Fund Manager shall make investments of the pension fund in equity and debt securities in a transparent, efficacious, prudent and sound manner. (2) The pension fund shall be divided into sub- funds to be called the Equity sub-fund, the Debt sub- fund and such other funds as may be determined by the Commission. (3) The investment policy for the pension funds shall be determined by the Commission from time to time. 25. Appointment of investment advisor. - (1) The Pension Fund Manager may employ investment advisor, not being a person having personal interest, registered under the NonBanking Finance Companies Rules, 2003, to deal in and enter into transactions in securities on behalf of the Pension Fund Manager. (2) Contract between the Pension Fund Manager and investment advisor shall be in writing setting out duties, rights and obligations of the parties clearly providing for mechanism to enforce the terms of the contract and the circumstances under which the agreement can be revoked and the fees payable subject to the approval of the Commission. (3) Investment advisors fee shall be paid by the Pension Fund Manager from his own account and it shall not be charged to the pension fund. 26. Short sale not allowed. - No Pension Fund Manager and investment advisor shall enter into a short sale transaction in any security, whether listed or unlisted. 27. Transaction with connected persons. - (1) No Pension Fund Manager on behalf of the pension fund shall purchase from or sell any security to any of the connected person. (2) No single connected stockbroker shall account for ten per cent or more of the pension funds brokerage or commission in any one financial year of the pension fund. (3) In case cash forming part of the pension funds assets is deposited with the trustee or the custodian, which is a banking company, return shall be paid on the deposit by such trustee or custodian at a rate that is not lower than the rate offered by the said banking company to its other 14

depositors on deposits of similar amount and maturity. 28. Limitations and prohibitions. - (1) No Pension Fund Manager on behalf of the pension fund shall lend, assume, guarantee, endorse or otherwise become directly or contingently liable for or in connection with any obligation or indebtedness of any person: Provided that investment in sale and repurchase transactions involving Government securities or such eligible listed securities which are regulated by stock exchanges shall not be attracted by this sub-rule subject to the condition that risk management parameters are disclosed in the constitutive document of the pension fund approved by the Commission. (2) Borrowing shall not be resorted to except for meeting withdrawal requests or transfer of funds to other Pension Fund Managers and such borrowing shall not exceed fifteen per cent of the total net asset value of the pension fund at any time, and shall be repayable within a period of ninety days. (3) The pension fund shall not be invested in any security of a company if any director or officer of the Pension Fund Manager owns more than five per cent of the total nominal amount of the securities issued, or, collectively the directors and officers of the Pension Fund Manager owns more than ten per cent of those securities. (4) Except where it is necessary to protect its investment, the Pension Fund Manager shall not seek to acquire a controlling interest in any enterprise in which it has invested or has any other interest, which would give it primary responsibility for management. 29. Appointment of trustee. For every pension fund, for which authorization is requested, the Pension Fund Manager shall appoint a trustee with the approval of the Commission. 30. Conditions applicable to trustee. A trustee shall be,(a) a scheduled bank licensed under the Banking Companies Ordinance, 1962 (LVII of 1962), which has minimum A+ rating from a credit rating company registered with the Commission, and has been in business for at least five years; (b) a trust company which is a subsidiary of a scheduled bank referred to in clause (a); (c) a foreign bank operating as a scheduled bank in Pakistan and operating as trustee internationally; or (d) a central depository company approved by the Commission. 31. Obligations of trustee. - A trustee shall; (a) take into its custody or under its control all the property of the pension fund and hold it in trust for the participants in accordance with the law and 15

the provisions of the constitutive documents; and the cash and registerable assets shall be registered in the name of, or to the order of, the trustee; (b) be liable for any act or omission of any agent with whom any investments are deposited as if they were the act or omission of any nominee in relation to any investment forming part of the property of the pension fund ; (c) be liable for the act and omission of the lender and its agent in relation to assets forming part of the property of the pension fund and, where borrowing is undertaken for the account of the pension fund, such assets may be registered in the lenders name or in that of a nominee appointed by the lender; (d) ensure that the issue, redemption and cancellation of units are carried out in accordance with the provisions of the constitutive documents of the pension fund; (e) ensure that the methods adopted by the Pension Fund Manager in calculating the values of the units of each sub- fund of the pension fund are adequate and that the net asset value is calculated in accordance with the provisions of the constitutive documents or as specified by the Commission; (f) carry out the instructions of the Pension Fund Manager in respect of investments unless they are in conflict with the provisions of the prospectus or constitutive documents; (g) ensure that the investment policy and borrowing limitations set out in the constitutive documents and the conditions under which the pension fund was authorized are complied with; (h) issue a report to be included in the annual report to be sent to participants whether, in the trustees opinion, the Pension Fund Manager has in all material respects managed the pension fund in accordance with the provisions of the constitutive documents, and if the Pens ion Fund Manager has not done so, the respects in which it has not done so and the steps which the trustee has taken in respect thereof; and (i) ensure that units are not allocated until contributions have been received. 32. Retirement of trustee. A trustee may, subject to prior approval of the Commission, retire from his office on appointment of a new trustee and the retirement shall take effect at the same time as the new trustee is appointed. 33. Trustee and Pension Fund Manager to be independent. (1) The trustee shall not in any way be related to the Pension Fund Manager or its directors or investment advisor. 16

(2) A director or employee of the trustee shall not be involved in any manner with the Pension Fund Manager. 34. Remuneration payable to trustee. - A trustee shall be entitled to such fee or remuneration as may be allowed by the Pension Fund Manager after prior approval of the Commission and such fee shall be charged as an expense to the pension fund. 35. Power of the Commission to give directions to trustees. - The Commission may, if it is satisfied that it is necessary and expedient so to do in the interest of the participants, or in the interest of the capital market and public, by an order in writing, give such directions to the trustees which are essential to enforce these rules including but not limited to making arrangements for safe custody of assets of the pension fund, submission of reports and disclosure of information. 36. Annual fee payable to the Commission. - Pension Fund Manager shall pay, as annual fee to the Commission, an amount equal to one thirtieth of one per cent of the average annual net asset value of the pension fund. Explanation.- For the purposes of this rule, the average annual net asset value means the average of total net asset values of the sub- funds calculated during the year for announcing the net asset value of each unit of the sub- funds. 37. Special audit of pension fund. - (1) The Commission shall monitor general financial condition of the pension fund, and, at its discretion, may order special audit and appoint an auditor who shall not be the external auditor of the pension fund, to carry out detailed scrutiny of the affairs of the pension fund, provided that the Commission may, during the course of the scrutiny, pass such interim orders and give directions as it may deem appropriate. (2) On receipt of the special audit report, the Commission may direct the Pension Fund Manager to do or to abstain from doing certain acts and issue directives for immediate compliance which shall be complied forthwith or take such other action as the Commission may deem fit. 38. Inquiry by the Commission. - (1) The Commission may cause an enquiry or inspection to be made by any person appointed in this behalf into the affairs of a pension fund authorised under these rules or of any of the directors, managers or officers of the Pension Fund Manager. (2) Where an enquiry or inspection under sub-rule (1) has been ordered, every director, manager or officer of the Pension Fund Manager to which or to whose director, manager or officer the enquiry or inspection relates and every other person who has had any dealing with such Pension Fund Manager, its director, partner, manager or officer shall furnish such information in his custody or power or within his knowledge relating to, or having bearing on the subject- matter of the enquiry or inspection as the person conducting the enquiry or inspection may by notice in writing require. (3) The person conducting an enquiry or inspection under sub-section (1) may call for, inspect and seize books of account and documents in possession of any such pension fund, 17

Pension Fund Manager or any of its directors, managers or officers. 39. Complaints and disputes to be referred to the Insurance Ombudsman. - (1) If any complaint or dispute arises between the participant and Pension Fund Manager under these rules, it shall be referred to the Insurance Ombudsman appointed under section 125 of the Insurance Ordinance, 2000 (XXXIX of 2000). (2) The Insurance Ombudsman shall have all the powers and shall follow the procedures as required under Part XVI of the Insurance Ordinance, 2000 (XXXIX of 2000), for this purpose. 40. Performance of Pension Fund Manager. - (1) The index of the weighted average investment return of all the sub- funds for all the Pension Fund Managers shall be calculated by the Commission within ninety days of the end of each calendar year. (2) The benchmark for the investment performance of the sub- funds shall be the index as determined in sub-rule (1) less two hundred and fifty basis points. (3) The benchmark referred to in sub-rule (2) shall be used to take corrective measures, including fine and cancellation of registration as Pension Fund Manager, as may be considered necessary by the Commission in respect of the Pension Fund Manager where the investment return in the sub- funds during any particular year is below the specified benchmark. 41. Publication of comparative statement of pension funds. (1) The Commission shall publish in the leading newspapers, after every six months, a comparative statement of all the pension funds offered by different Pension Fund Managers to enable the participants to compare the performance and make informed judgment. (2) The comparative statements shall include fee structure, rate of return and any other material information or issues, etc. (3)The cost of publication of the comparative statement shall be borne by the Pension Fund Managers according to the net asset value of the pension funds at the date of comparison. 42. Advisory Committee. - The Commission may, for the purpose of obtaining advice in carrying out the purposes of these rules, constitute an advisory committee consisting of such persons as representing the Pension Fund Managers, trustees, investment advisors or having special knowledge of the subject matter thereof, as it may think fit. 43. Power of the Commission to issue guidelines. - The Commission shall have the power to issue necessary guidelines to the intermediaries, Pension Fund Manager and participants with respect to the Voluntary Pension System. 44. Power of Commission to give directions. - The Commission may, if it is satisfied that it is necessary and expedient so to do in the public interest, in the interest of the participants or in the interest of capital market in Pakistan, by order in writing, require such compliance by any Pension Fund Manager, investment adviser, custodian, trustee, individually or collectively, which is essential to enforce these rules including ensuring safe custody of securities, submission 18

of periodic or special reports, disclosure of information and to make such arrangements, within such time as may be specified in the order, to,(a) (b) (c) disinvest the whole or such part of the investment portfolio as may be specified; refrain from investing or disinvesting such securities as may be specified; and co-opt one or more persons nominated by the Commission as members of the board of directors of the Pension Fund Manager with the same status, powers and rights as the other members of the board.

45. Power to require to furnish information, etc. - (1) The Commission may, at any time, by notice in writing, require the Pensio n Fund Managers generally, or any Pension Fund Manager in particular, in relation to the pension funds managed, to furnish it within the time specified therein or such further time as the Commission may allow, with any statement or information or document relating to the business or affairs of such Pension Fund Manager or Pension Fund Managers (including any business or affairs with which such Pension Fund Manager or Pension Fund Managers is or are concerned) and, without prejudice to the generality of the foregoing power, may call for information, at such intervals as the Commission may deem necessary. (2) No Pension Fund Manager, in relation to the pension funds managed, director, officer, employee or agent or auditor thereof shall, in any document, report, return, accounts, information or explanation required to be furnished in pursuance of these rules, or in any application made under these rules, make any statement or give any information which he knows or has reasonable cause to believe to be false or incorrect or omit any material fact therefrom. 46. Interpretation. - The Commission shall have the power to interpret these rules in respect of the Voluntary Pension System and decision of the Commission in this regard shall be final and binding. 47. Applicability of the Companies Ordinance. All the provisions of Part VIII A of the Companies Ordinance, 1984 (XLVII of 1984), shall apply to the Pension Fund Managers.

19

FORM I [See rule 5(1)] APPLICATION FOR REGISTRATION AS PENSION FUND MANAGER Dated, the-------------To The Securities and Exchange Commission of Pakistan, Islamabad. Dear Sir, We hereby apply for a certificate of registration under rule 5(1) of the Voluntary Pension System Rules, 2005, to act as a Pension Fund Manager. 2. We hereby furnish the following information: (a) date of incorporation as an asset management company or life insurance company; (b) authorised, subscribed and paid-up share capital of the company (sponsors' equity indicated separately); (c) names and addresses of directors with brief curriculum vitae and number of shares held by each of them ; (d) directors' interest, direct or indirect, in any other company with details of such interest; (e) details of persons or group controlling the company including major shareholders with number and value of shares held; (f) details of qualified staff engaged; (g) name and complete curriculum vitae of the chief officer responsible for the management and investment of the pension fund; (h) names of holding, subsidiary and associated undertaking, if any; (i) audited accounts for the last three years; (j) detail of the past dividends/bonus, etc., to the unit holders/policy holders/shareholders; and (k) any additional information in support of this application. Certified copies of the memorandum and articles of association and certificate of incorporation are enclosed. An affidavit as to the correctness of the above information by the chief executive and two directors is also furnished herewith. We undertake to keep this information up to date by communicating changes or modifications therein within fourteen days of such change or modifications.

3.

4.

5. A Bank Draft No. ________ for rupees fifty thousand (Rs.50,000/-) in the name of the Commission, as non-refundable processing fee is enclosed. Yours faithfully,

(To be signed by the Chief Executive and at least two directors) 20

FORM II [See rule 5(2)] SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN Islamabad, the ______________________ Registration No. ____________________ CERTIFICATE OF REGISTRATION AS PENSION FUND MANAGER The Securities and Exchange Commission of Pakistan, having considered the application for registration of the ** ......................................................... and being satisfied that the said **.......................................................... is eligible for registration, in exercise of the powers conferred by sub-rule (2) of rule 5 of the Voluntary Pension System Rules, 2005, hereby grants registration to the **.......................................................... subject to the conditions stated herein below or as may be prescribed or imposed hereafter. Signature of the Authorized Officer (Official Seal and Stamp) ** Name of the company.

21

FORM III [See rule 9(3)] INFORMATION TO BE CONTAINED IN THE APPLICATION FOR AUTHORIZATION OF PENSION FUND (1) Details of the parties to the pension fund; (a) Name of the company, registered as Pension Fund Manager; (b) Registered or business address; and (c) Previous approval of the Commission to manage authorized pension fund, if any. Structure of the pension fund. Launch; date and place. Valuation of assets. Pricing policy of the units. Fee structure and other charges. (a) Front end fee (sales charge); and annual management fee; and (b) level or basis of calculation of all other costs, charges, fees, etc., payable by the pension fund. The trustee. (a) Name. (b) Registered or business address. (c) Name of the ultimate holding company, if any. (d) Previous approval of the Commission as trustee of authorized pension fund or any other fund. If no, names of the directors and most recent audited financial report. (e) Letter of consent from the trustee. For the trustee and Pension Fund Manager. (a) Which, if any, of these companies are connected persons? (b) Name anyone who holds appointments, as director or officer, with more than one of these companies. Investment Advisor, if any. (a) Name. (b) Registered or business address. (c) Name of ultimate holding company, if applicable. (d) Copy of the contract of appointment. The auditor. (a) Name. (b) Registered or business address. The principal broker. (a) Name. (b) Registered or business address. (c) Whether the trustee or any of the directors of the Pension Fund Manager is a connected person of the principal broker? Legal Adviser. (a) Name. (b) Registered or business address.

(2) (3) (4) (5) (6)

(7)

(8)

(9)

(10)

(11)

(12)

22

SCHEDULE I [See rule 7(1)(e) and (f)] CONTENTS OF FINANCIAL REPORTS OF PENSON FUNDS General. (a) Annual report must contain all the information required in this Schedule. Interim reports must at least contain the statement of asset and liabilities and the investment portfolio. (b) All reports must contain comparative figures for the previous period except for the investment portfolio. (c) The items listed under the statement of assets and liabilities, income statement, statement of movements in reserves and the notes to the accounts, where applicable, must be disclosed. It is, however, not mandatory to adopt the format as shown or to disclose the items in the same order. (d) All the statements and accounts referred hereunder should be prepared in conformity with the International Accounting Standards notified under sub-section (3) of section 234 of the Companies Ordinance, 1984, and technical releases issued by Institute of Chartered Accountants of Pakistan from time to time;

1.

2.

Statement of assets and liabilities. The following must be separately disclosed for each sub- fund, namely,(a) total value of investments; (b) bank balances; (c) preliminary and floatation costs; (d) dividends and other receivables; (e) bank loan and overdrafts or other forms of borrowings; (f) amounts payable on withdrawal requests; (g) total value of all assets; (h) total value of all liabilities; (i) net asset value; (j) number of units issued per sub- fund; and (k) net asset value per unit of each sub-fund separately . 3. Income statement. In the income statement, the following information shall be provided to the Commission, namely: (a) total investment income net of tax, if any, broken down by category; (b) total other income, broken down by category; (c) an itemized list of various costs which have been debited to the pension fund including(i) fees paid to the Pension Fund Manager; (ii) remuneration of the trustee; (iii) amortization of formation costs; (iv) safe custody and bank charges; (v) auditor's remuneration; (vi) borrowing expenses; (vii) other amounts paid to any connected person of the pension fund; (viii) legal and other professional fees; and 23

(ix) any other expense borne by the pension fund; (d) taxes; and (e) amounts transferred to and from reserves. 4. Statement of movements in reserves. In the statement of movements in reserves the following information shall be provided to the Commission, namely:(a) (b) (c) (d) value of the pension fund as at the beginning of the period; number of units issued in each sub- fund and the amount received upon such issuance; number of units withdrawn from each sub-fund and the amount paid thereon; any item resulting in an increase or decrease in value of the pension fund including(i) surplus or loss on sale of investment; (ii) exchange gain or loss; (iii) unrealized appreciation or diminution in value of investment; and (iv) net income for the period less distribution; (e) amounts transferred to and from the revenue account; and (f) value of the pension fund as at the end of the period. 5. Note to the accounts. The following matters shall be set out in the notes to the accounts, namely:(a) principal accounting policies: (i)the basis of valuation of the assets of the pension fund including the basis of valuation of unquoted and unlisted securities; (ii)the revenue recognition policy regarding dividend income and other income; (iii)foreign currency translation, if any; (iv)the basis of amortization of formation costs; (v)taxation; and (vi)any other accounting policy adopted to deal with items which are judged material or critical in determining the transactions. Note. Any changes to the above accounting policies and their financial effects upon the accounts should also be disclosed; (b) disclosure of transactions with connected persons ;(i) details of all transactions entered into during the period between the pension fund and the management company, or any entity in which these parties or their connected persons have a material interest; and (ii) name of any director of the management company of any connected person if such person becomes entitled to profits from transactions in shares or from management of the pension fund and the amount of profits to which such person becomes entitled.

(c) borrowings,(i) state whether the borrowings are secured or unsecured and the duration of the borrowings; (ii) contingent liabilities and commitments of the pension fund; and 24

(iii)

if the free negotiability of any asset is restricted by statutory or contractual requirements, this must be stated.

6.

Contents of the auditors report. The report of the auditor should state,(a) whether in the auditors opinion, the accounts prepared for that period have been properly prepared in accordance with the relevant provisions of the trust deed and the Voluntary Pension System Rules, 2005; (b) without prejudice to the foregoing, whether in the auditors opinion, a true and fair view is given of the disposition of the pension fund at the end of the period and of the transactions of the pension fund of the period then ended; (c) whether the allocation and reallocation of units of the sub- funds for all the participants have been made according to the Voluntary Pension System Rules, 2005; (d) whether the cost and expenses debited to the pension fund are as specified in the constitutive documents of the pension fund; (e) if the auditor is of opinion that proper books and records have not been kept by the pension fund or the accounts prepared are not in agreement with the pension funds books and records, that fact; and (f) if the auditor has failed to obtain all the information and explanations which, to the best of his knowledge and belief, are necessary for the purpose of the audit, that fact.

7.

Investment portfolio. Information regarding investment portfolio should state, (a) number or quantity of each holding together with the description and market value ; (b) the total investment stated at cost; (c) the value of each holding as a percentage of net asset value and paid up capital of that company whose securities are owned; and (d) statement of movements in portfolio holdings i.e. purchased and sold during the period, since the end of the preceding accounting period. 8. Performance table. The following information shall be provided to the Commission, namely :(a) a comparative table covering the last five financial years and including, for each financial year, at the end of the financial year,(i) total net asset value in each sub-fund; and (ii) net asset value per unit in each sub-fund; and (b) a performance record over the last ten financial years; or if the pension fund has not been in existence during the whole of that period in which it has been in existence, showing the highest and lowest issue price of the units during each of those years. 25

SCHEDULE II [See rule 9(3)(a)] CONTENTS OF THE CONSTITUTIVE DOCUMENT OF THE PENSION FUND 1. Constitution of the pension fund. Name, registered address and place and date of authorization of the pension fund. Governing law. Operators and principals. The names and registered address of the following parties, where applicable: (a) the directors of the company registered as Pension Fund Manager; (b) the trustee; (c) foreign promoters, if any; (d) the distribution company, if any; (e) the auditor; (f) the legal adviser; and (g) the investment advisor, if any. Characteristics of pension fund. The following shall be characteristics of pension fund; namely:(i) eligibility; (ii) application procedures; (iii) contribution procedures and minimum contribution, if any; (iv) individual pension account; (v) change of pension fund manager; (vi) register of the participant s; (vii) retirement age; (viii) benefits on retirement; (ix) withdrawal of funds before retirement; (x) benefits on death before retirement; (xi) instructions from the participants; (xii) the method of determining net asset value of the pension fund; (xiii) frequency of valuation of the assets and dealings etc; (xiv) unit pricing and the circumstances under which it can change; (xv) the mode of announcement of net asset value and unit price; (xvi) redemption of units on change of pension fund manager or withdrawal; (xvii) the maximum interval between the request for redemption of units and the payment of the proceeds; and (xviii) withholding tax and tax penalty. Fees and charges. The following must be stated, namely: (a) The maximum upfront fee payable to the Pension Fund Manager out of the contributions; (b) the maximum fee payable to the Pension Fund Manager as annual management fee, expressed as a percentage of the net asset value of the pension fund; 26

2. 3.

4.

5.

(c) (d) (e)

the level and basis of all other costs, fees and charges payable by a participant. remuneration payable to trustee and investment advisor; and the level and basis of all other costs, fees and charges, etc., payable out of the pension fund.

6.

Investment policy and restrictions. Details of investment policy, including summary of the investment and borrowing restrictions. If the nature of the investment policy so dictates, a warning that investment in the pension fund is subject to risks, and a description of the risks involved. Statements and declarations. The following shall be the statements and declarations, namely:(a) a statement to specify the participating parties including the Pension Fund Manager, trustee and investment advisor; (b) a statement of the obligations of the Pension Fund Manager in accordance with the Voluntary Pension System Rules, 2005; (c) statement of the obligation of the trustees and manner in which the trustee may retire in accordance with the Voluntary Pension System Rules, 2005; (d) a statement that the trust deed is binding on each participant as if he had been a party to it and so to be bound by its provisions and authorizes and requires the trustee and the pension fund manager to do as required of them by the terms of the deed; (e) a declaration that the property of the pension fund is held by the trustee on trust for the participants of the pension fund pari passu according to the number of units held by each participant in each sub-fund of his individual pension account; (f) a statement that the trustee will report to participants in accordance with the Voluntary Pension System Rules, 2005; and (g) a statement of the base currency of the pension fund.

7.

8.

A summary of the circumstances in which dealing in pension fund may be deferred or suspended. It must be stated that no money should be paid to any intermediary except the Pension Fund Manager or his authorized representative as prescribed. Distribution restriction policy. The distribution restriction policy shall indicate the fact that distribution of dividend shall not be allowed under the voluntary pension system. Taxation. Details of exemptions, taxes levied on the pension funds income, tax penalty and withholding tax deductible on early withdrawal of the contributions. 27

9.

10.

11.

12.

Reports and accounts. The date on which the annual accounting period of the pension fund shall end each year. Particulars of the periodic reports to be sent to the participants and the Commission. Warnings. The following statements or warnings must be prominently displayed in the constitutive documents, namely: (a) If you are in any doubt about the contents of this constitutive document, you should consult your stock-broker, bank manager, legal adviser or other financial adviser; and a warning that the price of the units of the sub-funds of the pension fund and the income from them may go down as well as up.

13.

(b)

14.

Transactions with connected persons. This must be stated, in accordance with the Voluntary Pension System Rules, 2005; Termination of pension fund. A summary of the circumstances in which, the pension fund can be t erminated and consequences thereof, in accordance with the Voluntary Pension System Rules, 2005; Modification of the constitutive documents. A statement of the means by which modifications to the constitutive documents can be effected, if any.

15.

16.

[F. No. 3(24)Inv-II/2004]

(Muhammad Iqbal Hussain) Sr. Joint Secretary (Investment)

28

(SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN)

Islamabad, the 1 st June, 2005

NOTIFICATION S.R.O. 504 (I)/2005. ___ In exercise of the powers conferred by section 39 of the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997), read with clause (f) of section 2 and clause (b) of section 43 thereof, the Securities and Exchange Commission of Pakistan, with the approval of the Federal Government, hereby makes the following rules, namely:-

1. Short title, commencement and application. (1) These rules may be called the Clearing Houses (Registration and Regulation) Rules, 2005.

(2) They shall come into force at once.

(3) These rules shall apply to a clearing house as are required by the Commission to be registered under these rule s from time to time.

(4) Nothing contained in these rules shall apply to a clearing house established by a stock exchange providing in-house facilities to the stock exchange for settlement of securities.

2. Definitions. - (1) In these rules unless there is anything repugnant in the subject or context, -

(a) Act means the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997); (b) CD Act means the Central Depositories Act, 1997 (XIX of 1997); (c) clearing and settlement fund means the fund created pursuant to rule 12; (d) clearing fund contribution means the contribution required to be made by a clearing member to the clearing and settlement fund; (e) clearing house means a clearing house as defined in clause (f) of section 2 of the Act; (f) clearing member means a person who is admitted as a clearing member for clearing and settlement on his own behalf as well as on behalf of other brokers, under the regulations; (g) Commission means the Securities and Exchange Commission of Pakistan established under section 3 of the Act; (h) Ordinance of 1969 means the Securities and Exchange Ordinance, 1969 (XVII of 1969); and (i) Ordinance of 1984 means the Companies Ordinance, 1984 (XLVII of 1984).

(2) The words and expressions used but not defined in these rules shall have the same meaning as are assigned to them in the Act, Ordinance of 1969, Ordinance of 1984, and the CD Act, as the case may be.

3. Eligibility for registration. A person desirous of commencing business as a clearing house shall be eligible for registration under these rules subject to fulfillment of the following conditions, namely: -

(a) That such person is incorporated as a public limited company under the Ordinance of 1984; (b) that at least one stock exchange in Pakistan is a shareholder of such house; (c) that no promoter, director, officer or employee of such house,(i) has been convicted of fraud, breach of trust or an offence involving moral turpitude or removed from service for misconduct or has been adjudicated as insolvent; (ii) has been associated with any illegal banking business, deposit taking or financial dealings; (iii) has been a sponsor, director, chief executive or a senior management officer of a defaulting co-operative finance society or finance company; or (iv) has been a defaulter of any commercial bank or financial institution or non-banking financial institution or has suspended payment or has compounded with his creditors; (d) that the promoters of such house are persons of means and integrity and have special knowledge of matters which the ho use may have to deal with as a clearing house; and (e) that such person has complied with such other conditions as may be required by the Commission in the interest of the capital market.

4. Registration. (1) A person, eligible for registration under rule 3 may make an application to the Commission in such manner as the Commission may, from time to time prescribe.

(2) An application under sub-rule (1) shall be accompanied by a fee as may be specified by the Commission with the approval of the Board.

(3) The Commission if it is satisfied, after such inquiry and after obtaining such further information as it may consider necessary, that, -

a)

the applicant is eligible for registration; and

b)

it would be in the interest of the capital market so to do,

grant a certificate of registration under its seal to such house.

5. Refusal to grant registration. - (1) No application for registration made under rule 4 shall be refused except after giving the applicant an opportunity of being heard.

(2) In case the Commission refuses to grant registration to an applicant, the decision shall be communicated to the applicant stating therein the reasons for such refusal and the fee collected from the applicant shall be refunded.

6. Registration of existing clearing houses: (1) Notwithstanding anything to the contrary contained in these rules, a clearing house by whatever name or designation already in existence at the time of commencement of these rules, except in- house clearing houses as

referred in sub-rule (4) of rule 1, shall apply in writing to the Commission for grant of registration under rule 4, before the expiry of six months from the commencement of these rules.

(2) The Commission, if it is satisfied that such clearing house has fulfilled the conditions of eligibility for registration as specified under rule 3, may register such clearing house subject to such limitations as it may impose on the scope of its functions as a clearing house, as deemed fit by the Commission.

7. Renewal of registration. - (1) The certificate of registration granted under rule 4 shall be valid for one year and shall be renewable on payment of fee as may be specified by the Commission with the approval of the Board.

(2) The Commission shall, on receipt of payment of renewal fee and after making such inquiries and after obtaining further information as it may consider necessary, within thirty days of the receipt of the application, renew the registration of such house. However, the Commission may impose such further conditions, upon the renewal of registration of a clearing house, as it deems appropriate.

8. Refusal to grant renewal of registration. - (1) No application made under rule 7 shall be refused except after giving the applicant an opportunity of being heard.

(2) In case the Commission refuses to grant renewal of registration to an applicant, the decision shall be communicated to the applicant stating therein the reasons for such refusal and the renewal fee collected from the applicant shall be refunded.

9. Power to suspend or cancel registration, etc. - Without prejudice to the powers of the Commission under the Act, the Ordinance of 1969, or the Ordinance of 1984, upon being satisfied that a clearing house is not discharging its functions in accordance with the law, or neglects to so act, or otherwise fails to carry on its business in the interests of the capital market, the Commission may, after providing an opportunity to show cause, take such measures as it deems expedient including but not limited to suspension or cancellation of registration under these rules and take such other action as may be necessary to safeguard the interests of all stakeholders concerned.

10. Submission of annual report, etc. - (1) A clearing house shall file its annual report and accounts within four months of the close of the accounting period along with the following information and documents, namely: -

(a) Names of the persons admitted or readmitted as clearing members of the clearing house and any change therein; (b) list of shareholders of the clearing house indicating change in the shareholdings, if any; (c) names of the senior management staff of the clearing house with their respective qualifications and experience; (d) names of brokers defaulting during the year along with nature and amounts of default; (e) disciplinary action taken against clearing members; (f) name wise details (nature and amount) of penalties imposed on the clearing members; and (g) action taken to combat any emergency in settlement of securities.

(2) Without prejudice to the provisions of sub-rule (1), a clearing house shall furnish to the Commission such other documents, information or explanation relating to its affairs as the Commission may, from time to time, require in writing.

11. Obligation of clearing members towards clearing house. (1) A clearing house shall have the power to call for information, undertake inspections, conduct inquiries and audits of its clearing members in relation to the performance of its functions, under the regulations.

(2) A clearing member shall submit all information and records to the clearing house in respect of inspections, investigations, inquiries and audits whether undertaken at the initiative of the clearing house or on the direction of the Commission and shall respond to all requests by the clearing house for information on a regular or exceptional basis.

12. Establishment of clearing and settlement fund. (1) A clearing house shall establish a clearing and settlement fund from which a clearing members obligation to clearing house may be satisfied, in case of default of such member, and every clearing member shall make his clearing fund contribution to the clearing and settlement fund.

(2) The clearing and settlement fund shall have an initial contribution of rupees one hundred million by the clearing house and shall be funded thereon by a part of clearing and settlement fee paid by the members.

(3) The clearing and settlement fund may be divided into sub- funds, each of which can be utilized to discharge obligations for any particular service for which the clearing house has assumed responsibility.

13. Duty to maintain confidentiality. (1) No clearing house or any officer or member of a clearing house, whether during the tenure of his office or thereafter, or any other person who has by any means knowledge of any information or document relating to the affairs of any of the clearing member and in particular relating to their accounts, shall give, divulge, reveal or otherwise disclose such information or document to any other person.

(2) A person who has any information or document which to his knowledge has been disclosed in contravention of sub-rule (1) shall not in any manner, howsoever, disclose it to any other person.

(3) Notwithstanding anything contained in this rule, the provision of confidentiality shall not entitle any person to refuse disclosure of any information or document, (a) which a clearing member has himself authorized in writing to disclose;

(b) in case where a clearing member is declared bankrupt or in case where the clearing member is a company or body corporate and is being, or has been, wound up within or outside Pakistan; (c) in pursuance of any summons or notice issued by any Court, Tribunal or Authority having competent jurisdiction requiring production of such information or document;

(d) to any person duly authorized by a competent Court, the Commission or the State Bank of Pakistan to investigate into any offence under any law; (e) for the purpose of enabling or assisting the Commission or the State Bank of Pakistan to exercise any power conferred on it by any law; (f) for the purpose of enabling or assisting a stock exchange or to discharge its functions; and (g) any such disclosure which may be required under the law.

14.

Power of the Commission to give directions . - (1) The Commission may, if

satisfied that it is necessary or expedient so to do in the public interest or in the interest of the capital market, by order in writing give directions to a clearing house.

(2) The Commission may, on representation made to it or on its own motion modify or cancel any direction issued under sub-rule (1), and in so modifying or canceling any direction may impose such conditions as it thinks fit.

15.

Power to require information. - The Commission may, at any time, by notice in

writing require any director, officer and member of a clearing house, generally or in particular to furnish it within the time specified therein or such further time as the Commission may allow, with any statement or information or document relating to the business or affair s of such clearing house and without prejudice to the generality of the foregoing power, may call for information, at such intervals as the Commission may deem necessary.

16. Penalty for failure, refusal to comply with, or contravention with any provision of the rules. If any person fails or refuses to comply with, or contravenes any of the provisions

of these rules or any direction or order passed by the Commission under these rules or knowingly or willfully authorizes or permit such failure, refusal or contravention, he shall in addition to any other liability under the Act, the Ordinance of 1969, and the Ordinance of 1984, be punishable with a fine as may be specified by the Commission with the approval of the Board.

Government of Pakistan

Ministry of Commerce
Islamabad, the 3rd September 2005 NOTI FI CATI ON S.R.O. 905(1)/2005 In exercise of the powers conferred by sub-section (1) of section 167 of the Insurance Ordinance, 2000 (XXXIX of 2000), read with clause(lxiv) of section 2 and the second proviso to section 120 thereof, the Federal Government, is pleased to make the following rules, the same having been previously published as required by subsection (1) of the said section 167, namely : 1. (2) Short title and commencement.-(1) These rules may be called the Takaful Rules, 2005. These shall come into force at once.

2. Definitions. (1) In these rules, unless there is anything repugnant in the subject or context, (a) accept re-Takaful includes risks from Takaful pools or re-Takaful pools managed by other Takaful or re-Takaful operators for inclusion in Takaful pools managed by the Takaful operator; (b) Bank means the State Bank of Pakistan;

(c) Central Shariah Board means the Central Shariah Board constituted by the Securities and Exchange Commission of Pakistan under rule 33; (d) contribution means Takaful charge or instalment payable by a participant;

(e) Family Takaful means Takaful for the benefit of individuals, groups of individuals and their families as elaborated in the provisions of the Ordinance pertaining to life insurance business;

(f)

General Takaful means Takaful other than Family Takaful;

(g) mudaraba based contract means a Takaful contract based on the principle of mudaraba; (h) Ordinance means the Insurance Ordinance (XXXIX of 2000);

(i) participant includes, where Takaful policy has been assigned, the assignee for the time being and, where he is entitled as against to participant Takaful Fund to the benefits of the policy, the legal heirs of a deceased participant; (j) Participants Investment Account (PIA) means the investment account of the participants under a Family Takaful plan; (k) Participants Investment Fund (PIF) means a separate fund comprising of the underlying assets representing the units of the PIA under a Family Takaful plan; (l) Participants Takaful Fund (PTF) means a separate risk pool to which the participants risk related contributions are paid and from which risk related benefits are paid out; (m) Participants membership documents (PMD) means the documents detailing the benefits and obligations of a participant; (n) Principal Officer means a person, by whatever designation called, appointed by a Takaful operator and charged with the responsibility of managing the affairs of the Takaful operator; (o) re-Takaful means an arrangement consistent with sound Takaful principles for reTakaful of liabilities in respect of risks accepted or to be accepted by the Takaful operator in the course of his carrying on Takaful business and includes ceding risks from Takaful pool(s) managed by the Takaful operator(s) to one or more re-Takaful pool(s) managed by any other one or more Takaful operator(s) in line with Takaful principles; (p) Shariah Board means a Shariah Board constituted by a Takaful operator for its Takaful business under rule 34; (q) Shariah compliant investments means investment that adhere to principles and injunctions of Islam as laid down in Shariah (i.e., the Quran, Sunnah, Ijma and Qiya) and established by practice and usage and as approved by the Shariah Board of the Takaful operator;

(r) Takaful benefit includes any benefit, whether pecuniary or not, which is secured by a Takaful policy, and the word pay and other expressions, where used in relation to Takaful benefit, shall be construed accordingly; (s) Takaful broker means a person who is permitted by the Securities and exchange Commission to carry on Takaful business as Takaful broker; (t) Takaful business means business of Takaful whose aims and operations do not involve any element which is not in consonance with the injunction of Islam as laid down in the Shariah; (u) Takaful policy includes any contract of Takaful for Family Takaful business or General Takaful business whether or not embodied in or evidenced by an instrument in the form of a participants membership document, and references to issuing a policy shall be construed accordingly; (v) Takaful operator means a person who is permitted by the Securities and Exchange Commission to carry on Takaful business as Takaful operator ; (w) Wakala based contract means a Takaful contract based on the principle of Wakala ; and (x) Window Takaful Operator means a life insurer registered under the Ordinance and carrying out the business of Family Takaful under window operations within its corporate structure, and follows the rules applicable to other Takaful operators. (2) The words and expressions used but not defined herein shall have the same meaning as are assigned to them in the Ordinance. 3. Classes of Takaful business.-(1) For the purposes of these rules, Takaful business shall be divided into the classes as specified in section 4 of the Ordinance. (2) A Takaful operator may underwrite any or all classes of Takaful business provided that under each of the classes of Takaful business, approval shall be obtained from the Commission as to the permissibility of underwriting that class of Takaful business and the types of risks that may be permissible within each class. The objective of this being that risks of non-permissible classes of Takaful business such as which may not be in accordance with the principles of indemnification of losses or insurance of businesses of non-permissible items as defined by the Shariah Board may not be included in the Takaful operations. 4. Composite Takaful.-The Commission shall not grant registration to any applicant nor would it permit grant an existing insurer the permission to underwrite and to carry on the businesses both of Family Takaful and General Takaful conjointly.

5. Window products or Takaful operations by conventional insurer.-(1)Existing life and non-life or general insurance companies carrying on conventional business shall not be permitted to underwrite Takaful business or launch such products : Provided that in case an existing non-life or general insurer wishes to transform its business into Takaful business, it shall be given a period of not more than one year from the date it start underwrite Takaful products, after which it would be required to underwrite Takaful products only. After this period, the licence of that insurer for underwriting conventional insurance business shall stand cancelled automatically. This period shall be meant to give such insurer time to establish itself in Takaful operations. 2. The Commission, after at least five years of the start of Takaful operations in Pakistan, may allow window Takaful operations in consultation with the Ministry of Commerce to conventional insurance companies, subject to such terms and conditions as may be recommended or specified by the Commission from time to time. 6. Requirement for carrying on business as Takaful operator.-Subject to these rules, Takaful business shall not be carried on in Pakistan by any person as Takaful operator who is not eligible under section 5 of the Ordinance and has not been granted a certificate of registration by the Commission under section 6 of the Ordinance. 7. Use of word Takaful.-No person other than a registered Takaful operator shall, without the written consent of the Commission, use the word Takaful or any other word implying similar meaning indicating that such person carries on Takaful business in the name, description or title under which it carries on business in Pakistan or make any representation to such effect in any bill-head, letter paper, notice or advertisement or in any other manner whatsoever . 8. Takaful operational model.-(1) The principal operational model for insurance risk management and the investment component shall be based on the Islamic concept of wakala and modarba, respectively. (2) All contributions received under Family Takaful contracts shall be credited to the Takaful Business Statutory Fund. All such contributions shall be divided into the following components, the determination of each component being clearly and unambiguously defined in the participants membership documents (PMD), namely: (a) (b) (c) Investment component; risk related component; and Takaful operators fees.

(3) A separate Participants Takaful Fund (PTF) shall be created within the Takaful business Statutory Fund to which the risk related component of

contributions and Takaful operator s fees shall be credited and from which benefits shall be paid out. (4) The investment component shall be credited to one or more Participants Investment Funds (PIFs) , the proportion to be credited to each PIF being defined in the PMD. Each PIF shall be divided into Participants Investment Accounts (PIAs), a separate account being maintained for each PIA. Investment of funds may be made in consonance with the Islamic concept of the mudaraba, wakala or a combination of mudaraba and wakala at the option of the Takaful operator (or its Appointed Actuary in case of Family Takaful) and the Shariah Board as clearly spelled out in the participants membership documents. (5) All contributions received under General Takaful contracts, net of any Government levies, shall be credited to one or more Participants Takaful Funds (PTFs). A General Takaful operator may create a single PTF or separate PTFs for different classes of business. 9. Participants Takaful Fund.-(1) A PTF shall be a separate fund the purpose of which shall be the pooling of risks amongst the participants. The role of the Takaful operator shall be the management of the PTF and related risks. At the initial stages of the set-up of the PTF the Takaful operator and any of its shareholders may at their discretion make an initial donation or qard-ehasna to the PTF. The objectives of the PTF shall be to provide relief to participants against defined losses as per the PTF rules and the PMD. (2) The Takaful operator shall define the PTF rules which shall be in accordance with the generally accepted principles and norms of insurance business suitably modified with guidance by the Shariah Board of the Takaful operator. Any subsequent changes to the PTF rules shall also be approved by the Shariah Board.

(3) (a) (b) (c) (d) (e) (f) (g) (4) (a)

The income of the PTF shall consist of the following, namely :Contributions received from participants (other than the portion transferred to the PIF under Family Takaful policies) including Takaful operator s fees which should be a part of the contributions; claims received from re-Takaful operators and re-insurers; investment profits generated by the investment of funds and other reserves attributable to participants in the PTF; salvages and recoveries; qard-e-hasna by the shareholders fund to the PTF in case of a deficit; commission received from re-Takaful operators and reinsurers; and any donation made by the shareholders. The outgo from the PTF shall consist of the following, namely:Losses settled related to participants risks and expenses directly related to settlement of claims such as surveyors fees, etc, but not including any

office expenses. All expenses to be charged to the PTF (other than benefit payments) shall need to be defined in the PTF rules and the PMD; (b) re-Takaful and reinsurance costs; (c) Takaful operator s fees, which shall not be determined with reference to the surplus in the PTF; (d) share of investment profits of the mudarib share, a as or a PTF s percentage of the funds as wakala fees for investment management or any other combination thereof approved by the Appointed Actuary (in the case of Family Takaful operator) and Shariah Board of the Takaful operator; (e) surplus distributed to participants; and (f) return of qard-e-hasna to the Shareholders Fund ; (5) Subject to the provisions of the Ordinance, technical reserves required to be set up in the PTF shall consist of all of the following reserves or any one of them, or any combination of two or more of them or such other reserves as the Appointed Actuary of the Takaful operator may require to be provided, namely :(a) Unearned contributions reserves ; (b) incurred but not reported reserve ; (c) deficiency reserve ; (d) contingency reserve ; (e) reserve for qarde-e-hasna to be returned in future ; and (f) surplus equalization reserve . 10. Shareholders Fund (SHF).-(1) A Shareholders Fund shall be maintained for Family and General Takaful business, on similar basis, as per the requirements under the Ordinance and the Securities and Exchange Insurance Rules, 2002, for life insurers, and non-life insurers, respectively. The Shareholders Fund shall be maintained under the guidelines provided by its Shariah Board and Central Shariah Board. The SHF shall consist of the paid-up capital and undistributed profits to the Shareholders. (2) In the case of General Takaful operator, the income of the Shareholders Fund shall consist of the following, namely: (a) Takaful operator s fees, which shall not be determined with reference to the surplus in the PTF; (b) profit on the investment of the SHF; and (c) proportion of the investment profit generated by the investment of the PTF or the fees for investment as per the PTF rules and the PMD. (3) The expenses of the Shareholders Fund shall consist of all the expenses related to the Takaful operator other than those mentioned in the PTF rules and the PMD and shall include all marketing as well as administrative, investment and operational expenses, except commissions or over-riders paid to the business intermediaries, benefit payments and related expenses such as surveyors fees.

(4) The shareholders must undertake to discharge unconditionally all the contractual liabilities of the PTF, but their liability in this regard shall not exceed the SHF. 11. Qard-e-hasna.-When the PTF including reserves are insufficient to meet their current payments less receipts, the deficit shall be funded by way of an interest-free loan (qard-e-hasna) from the SHF. 12. Relationships.-(1) For the risk sharing portion the relationship of the participants and of the Takaful operator shall be directly with the PTF. The Takaful operator shall act as the wakeel of the PTF and the participants shall pay contributions to the PTF. (2) Being members of the PTF, the participants shall be entitled to the benefits as per the PTF rules and the PMD. (3) The shareholders shall provide an undertaking to the PTF to provide the members benefits in the event that there is a deficit in the PTF at any point by giving a Qard-e-hasna to the PTF. The shareholders shall, however, have the right to recover the Qard-e-hasna payments to the PTF from future surpluses in the PTF. (4) The other relationship with the Takaful operator shall be that of either mudarib or wakeel or both , where in the case of the PTF, the Takaful operator shall also act either as mudarib or wakeel or both to the PTF. Further in the case of the Family Takaful plans with a savings element, the Takaful operator shall also act either as mudarib or wakeel or combination of mudarib or wakeel relating to the PIF. 13. Payment of losses.-(1) The Takaful operator shall, on the basis of set rules and regulations to be defined for the PTF and in the PMD, pay the losses of participants of the fund from the same fund as per its rules. Besides this, all expenses that shall be incurred for providing Takaful benefits such as re-Takaful contributions shall also be met from the same fund. (2) The PTF rules shall lay out the broad terms and conditions under which claims and other benefits shall be payable and conditions and limitations which shall be applicable. The PMD shall contain specific details related to the risks covered for a specific risk and member. (3) The PTF as well as PMD for each class of Takaful business shall be approved by the Shariah Board of the Takaful operator and after its approval the same shall be filed with the Commission and unless objected to in writing within fifteen days of such filling by the Commission the same shall assumed to be approved and remain in force and if objected to in writing the objections shall be removed by the Takaful operator to the satisfaction of the Commission.

14. Sharing of surplus.-(1) At the end of each financial year the Takaful operator shall evaluate the assets and liabilities of the PTF and determine whether the operation for that particular period had produced a surplus or a deficit for sharing amongst the participants. (2) The determination of surplus in the PTF shall be done at least once each accounting year. (3) The determination of surplus shall be done by the Appointed Actuary for a Family Takaful operator; and by the Management of General Takaful operator. Such surplus shall be determined by carrying out evaluation as at the date of such determination. (4) Surplus at each valuation date shall be made up of technical results and investment returns related to the PTF. Surplus shall arise from the total contributions paid by the participants to the PTF less the total value of claims paid (less claims received from reTakaful or reinsurance and recoveries made) to hem for the risks covered under the PTF, less Takaful operator s fees charged related to Takaful operations managed by the Takaful operator, less commission paid to the intermediaries and the change in the technical reserves. (5) Takaful operator may hold a portion of the surplus as a contingency reserve (over and above the technical provisions). The rest of the surplus shall be distributed to participants in proportion to the contributions to the PTF net of any risk related claims, which they may have received during the intervaluation period. (6) In the case of General Takaful business the distribution of surplus shall be after each valuation. Contracts completing their risk period in the accounting year for which the valuation is done shall be taken into account for surplus distribution based on the results of the previous valuation. (7) In the case of Family Takaful business the surplus distribution may be done after each actuarial valuation or it may be distributed only to those participants who actually leave the risk pool by way of termination of membership which may be due to the payment of benefits as per the PMD or otherwise. The determination of surplus shall consider the method of surplus distribution. (8) A Takaful operator may compute the distributable surpluses on the basis of the combined results of all the classes of business or calculate the surpluses separately for each class. (9) The distribution of surpluses to participants may be carried out more frequently than yearly, depending on the administration and computer systems of the Takaful operator.

(10) The Board of Directors, with the consent of the Shariah Board of the Takaful operator shall initially set out the detailed mechanism for the distribution of such surplus, and the frequency of distributions made annually, or more frequently after the technical evaluation of assets and liabilities. The mechanism shall form a part of the PTF and shall also be mentioned in the PMD. (11) The Takaful operator may distribute surplus either in cash or adjust against future contributions or in the case of Family Takaful contracts, credit the surplus to the PIA. However in the case that a member does not wish to continue as a participant in the PTF it shall be necessary to pay surplus to such member based on his entitlement. (12) If a participant wishes to donate its surplus for social or charitable purposes, this shall be done by the Takaful operator. 15. Deficit .-In case of a deficit in the PTF, the Takaful operator shall undertake to give Qarde-Hasna to the PTF to make good of the deficit. The Qard-e-Hasna may be recovered from future surpluses without any excess on the actual amount given to the PTF. 16. Management and marketing expenses.-(1) All the administrative and management expenses of the Takaful operator, except those enumerated under sub-rule (4) of rule 9 , shall be borne by the shareholders in consideration of receiving a stipulated proportion of the gross contributions to the PTF by way of Takaful operator fee. (2) The shareholders shall be responsible for all expenses of management and marketing, etc. Shareholders income shall include the Takaful operator fee and investment management fee or share, for the PTF and the PIF and investment income on the SHF. Takaful operator fees to be charged and the investment management fee or share shall be explicitly defined in each PMD and Takaful contract. (3) All expenses of Takaful business shall form part of the expenses of Takaful Business Statutory Fund for Family Takaful operators; and Shareholders Fund for General Takaful operators. 17. Funds.-(1) A Takaful operator shall maintain and administer two funds, one to be known as the Participants Takaful Fund (PTF); and the other the Shareholders Fund (SHF). Further in the case of Family Takaful plans, a Participants Investment Fund (PIF) related to the Participants Investment Account (PIA) shall also be maintained; (2) For Family Takaful business, the PTF, PIF and PIA shall be linked to the Takaful Business Statutory Fund.

18. Participants Investment Fund (PIF).-(1) In the case of Family Takaful plans, a portion of the contributions each year shall be invested to build up surrender values for the participants. These shall be maintained in the form of units for each participant in a Participants Investment Account (PIA). The underlying assets against these units shall be maintained in a separate fund to be called the Participants Investment Fund. (2) The income and expenses of the PIF shall be maintained separately and unit price shall be determined at least once every month. 19. Investment management of funds.-Investment of participants contributions within the PTF as well as in the PIF shall be managed under a wakala contract, a mudaraba contract or a combination contract as determined to be sound and workable by the Shariah Board of the Takaful operator. The Takaful operator shall set the fee structure and the profit sharing ratio on the investment management based on the advice of the Shariah Board and the Appointed Actuary, if any. 20. Product design.-A Takaful product shall be based on the principle of wakala or mudaraba or both. The Appointed Actuary of the Family Takaful operator shall ensure that the products are sound and workable whereas the Shariah Board of the Takaful operator shall ensure that these conform to the Islamic principles. 21. Deposits.-(1) A Takaful operator shall at all times maintain a deposit with the State Bank of Pakistan in accordance with the provisions of section 29 of the Ordinance. (2) Any such deposit shall be made in cash or instrument of an approved Islamic financial institution. This deposit shall be marked as a lien to the State Bank of Pakistan. 22. Shareholders funds under capital or equity raised by the sponsor or Takaful operator.-(1) For a Takaful operator, the Shareholders funds shall be maintained only in securities or in a manner which is not against Islamic principles and shall comprise mainly of securities which are approved by the Shariah Board of the Takaful operator. (2) All income accruing and receivable in respect of a deposit shall be payable to, and receivable by, the Takaful operator making the deposit. (3) The Takaful operator who has made a deposit under this rule may at any time substitute assets comprising the deposit cash and securities as may be specified by the Shariah Board. 23. Books and records of Takaful business.-(1) Every Takaful operator shall maintain proper books and records of its business. The provisions of section 45 of the Ordinance shall apply to all Takaful operators. 24. Establishment and maintenance of Participants Takaful Funds, and allocation of surplus.-(1) Every Takaful operator shall establish and maintain a Participants Takaful

Fund in respect of the class or each of the classes of Takaful business carried on by the Takaful operator in Pakistan so far as that business relates to policies issued in Pakistan. (2) There shall be paid into a Participants Takaful Fund all receipts of the Takaful operator properly attributable to the business to which the Participants Takaful Fund relates (including the income of the Participants Takaful Fund), and the assets comprised in the Participants Takaful Fund shall be applicable only to meet such part of the PTF s liabilities and expenses as is properly so attributable. (3) In the case of a Participants Takaful Fund established in respect of Family Takaful business, no part of the Participants Takaful Fund shall be allocated by way of Takaful benefits to participants except with the approval of the Appointed Actuary and out of a surplus of assets over liabilities as shown on the last statutory valuation of the Participants Takaful Fund and on the making of any such allocation that surplus shall be treated for purposes of this rule as reduced by the amount allocated. (4) In the event of winding up, assets comprised in the deposit made by a Takaful operator under these rules shall be treated as assets of the Participants Takaful Fund established by the Takaful operator, and sub-rule (2) shall apply to those assets accordingly. In the event of winding up and if at the same time the Participants Takaful Fund is in deficit, the deposit should first be made available to meet that deficit. Only the left over shall be reimbursed to the shareholders. (5) A Participants Takaful Fund established by a Takaful operator for any class of business shall, notwithstanding that the Takaful operator at any time ceases to carry on that class of business in Pakistan continue to be maintained by the Takaful operator so long as the Takaful operator is required under these rules to maintain proper books and records for policies belonging to that class. 25. Requirements as to assets of PTF.-(1) The assets of the PTF shall be kept separate from all other assets of the Takaful operator, and shall not include assets comprised in a deposit under these rules, nor any amounts on account of goodwill, the benefit of development expenditure or similar items not realizable apart from the business or part of the business of the Takaful operator. (2) The Commission may, in respect of assets of the PTF, require a Takaful operator.(a) not to make investments of a specified class or description; and

(b) to realize, before the expiration of a specified period or such extended period as the Commission may allow, the whole or specified proportion of investment of a specified class or description held by the Takaful operator when the requirement is made.

26. Solvency requirement.-For the purposes of solvency requirement, subject to sections 32 to 39 of the Ordinance, all investments out of the Takaful operator and Participants Takaful Funds shall be made in the modes and securities approved by the Shariah Board of the Takaful operator. 27. Investment guidelines.-(1) The Takaful operator shall be required to invest his available funds in his PTF and PIF in the modes and products that adhere to principles established by the Shariah and all such modes and products shall be approved by the Shariah Board of the Takaful operator. (2) Limitations in terms of percentage investments in different Shariah compliant investments shall be issued by the Commission from time to time as new instruments become available in the market. (3) The following guidelines shall be followed for investments of the surplus funds in the PTF, namely:(a) Investment in Shariah compliant Government securities.-Any Shariah compliant Government instrument such as Islamic bonds and securities restricted to eighty per cent of the funds; and (b) Investments in immoveable property.-The Takaful operators shall be allowed to invest in immoveable property subject to the following conditions, namely:(i) the use and intended use of the property should be in compliance with the Islamic principles; and (ii) return on rented property may be in the form of fixed rent but in case of delayed payments penalty may be charged and the penalty amount shall be given to charity. (c) Investment in Joint Stock Companies.-The Takaful operator may invest its funds in joint stock companies. However, investments in non-Shariah compliant preferred stocks, debentures and interest based redeemable capital securities are not allowed. For investments in the common stocks of joint stock companies, the following guidelines should be followed in consultation with the Shariah Board, namely:(i) The main business of the investee company must not violate Shariah. Therefore, it is not permissible to acquire the shares, debentures or certificates of the companies providing financial services like conventional banks or the companies involved in business prohibited by Shariah like alcohol production, gambling or night club activities, etc;(ii) the Shariah Board of the Takaful operator shall take into consideration factors such as the proportion of income of the investee company from

interest bearing accounts or non-Shariah based activities, the debt to equity ratio and cash or cash equivalents of the investee company; and (iii) investment decision shall be based on fundamental value of the companies instead of short-term speculations. (d) Investments in redeemable capital.- The Takaful operator may also make its portfolio investments through various mutual funds operating under the Shariah principles and approved by the Commission. Before making any investment therein, the Takaful operator shall have the procedures and practices being followed by such funds scrutinised by its Shariah Board. (e) Investments in redeemable capital.-The Takaful operators may invest their funds in Shariah compliant instruments like Musharika Certificates, Term Finance Certificates (TFCs), Participation Term Certificates (PTCs), etc. However, in case of investment in redeemable capital it shall be necessary that the certificates are issued in compliance with the Islamic injunctions and the scheme of their issue be examined by the Shariah Board of the Takaful operator. The basic conditions as laid down earlier for investments in the common stock of joint stock companies should also be followed. (f) Placement of excess funds with banks and Islamic financial institutions.The Takaful operators may invest a portion of their funds in liquid or short notice deposits schemes of Islamic banks and their branches or other Islamic financial institutions, placements in PLS saving accounts of Islamic banks and placement in current accounts of traditional banks without any return thereon. (g) Financing under Islamic modes through the Islamic banks and financial institutions.-The Takaful operators may make arrangements with the Islamic banks operating in Pakistan to directly finance under musharika, murabaha, ijara (lease), salam, istisna contracts approved by the Commission. 28. Re-Takaful.-(1) The Takaful operator shall ensure that the re-Takaful and reinsurance arrangements are consistent with the sound Takaful principles and are as per the guidelines provided by its Shariah Board. (2) The provisions of section 41 of the Ordinance and rule 15 of the Securities and Exchange Commission Insurance Rules, 2002, shall also apply to Takaful business. (3) In the event that the capacity provided by a Shariah complaint re-Takaful operator is not sufficient to support the business strategy of the Takaful operator, the Takaful operator, under advice of its Shariah Board, may be allowed to enter into re-Takaful and reinsurance contracts with conventional reinsurance companies till such time that proper re-Takaful arrangements are available.

(4) In the case of a Takaful operator the compulsory cession to the Pakistan Reinsurance Company Limited (PRCL) shall not be applicable. Howevr, where a share is offered to a conventional reinsurance company, in such a case it shall be necessary to first offer this to PRCL as per the requirements of the Ordinance. (5) The Takaful operator may be permitted by the Commission to share risks with other Takaful operators within and outside Pakistan. 29. Acceptance of risk by Takaful operator.-(1) Subject to sub-rules (2) and (3), no Takaful operator shall accept any risk in respect of any general business unless and until the contribution payable is received by the Takaful operator or is guaranteed to be paid by such person. (2) Where the contribution payable under sub-rule (1) is received by any person, including a Takaful agent or a Takaful broker, on behalf of a Takaful operator, such receipt shall be deemed to be receipt by the Takaful operator for the purposes of that sub-rule and the onus of proving that the contribution payable was received by a person, including a Takaful broker, who was not authorized to receive such contribution shall lie on the Takaful operator. (3) Any refund of contribution, which may become due to a participant on account of the cancellation of a policy or alteration in its terms and conditions or for any other reason shall be paid by the Takaful operator, from the PTF, directly to the participant and a proper receipt shall be obtained by the Takaful operator from the participant and such refund shall under no circumstances be paid or credited to any other person, including a Takaful broker. 30. Control of forms of proposal, policies and brochures.-(1) The Commission may by notice in writing require a Takaful operator to submit the forms of proposal and policies for the time being in use by the Takaful operator, and any brochure which is for the time being in use there by the Takful operator for describing the terms or conditions of, or the benefits to be or likely to be derived from, policies; and where the whole or part of any such forms or brochure is not in Urdu or English there shall be submitted with it a translation in the Urdu or English. (2) A requirement under this rule, unless it is otherwise provided therein, shall apply to all such forms and brochures as aforesaid coming into use after the making of the requirement and before the Commission notifies the Takaful operator that the requirement is withdrawn. (3) If it appears to the Commission, after affording the Takaful operator an opportunity of being heard that any such form or brochure as aforesaid contravenes or fails to comply with any provision of these rules or is in any respect likely to mislead, it may, by notice in writing, direct the Takaful operator to discontinue the use of the form or brochure either forthwith or from a date specified in the notice.

Explanation.-For the purpose of this rule, the expression brochure includes any leaflet, circular or similar advertising matter, whether printed or not. 31. Shariah compliance audit.-Takaful operator shall appoint a Shariah compliance auditor who will conduct its audit for each accounting period. 32. Accounting regulations.-The regulations and statements under section 46 of the Ordinance shall apply to Takaful business with appropriate modifications based on the advice of the Shariah Board of the Takaful operator. 33. Central Shariah Board.-A Central Shariah Board (CSB) may be appointed by the Commission for advice on any aspect of Takaful operations. 34. Shariah Board.-(1) Each Takaful operator shall appoint a Shariah Board (SB) of not less than three members which shall be responsible for the approval of products, documentation as well as approval of all operational practices and investment of funds which shall be filed with the Commission. (2) Since the Shariah scholars on the religious boards carry great responsibility, the Takaful operator shall appoint only high calibre scholars who are specialized jurists in fiqh almu amalat (Islamic commercial jurisprudence) to such Boards. In addition, they shall have knowledge of modern financial dealings and transactions. (3) The Takaful operator shall submit to the Commission details of the members of its Shariah Board at the time of commencing Takaful business and at later dates if there is a change in the composition of the Shariah Board. The Commission may within thirty days of such submission, based on reasonable grounds, require a Takaful operator in writing to reconstitute its Shariah Board. 35. Meeting between Central Shariah Board and Shariah Boards.-The Central Shariah Board may hold meetings with the members of the Shariah Boards of all Takaful operators, individually or jointly, anytime it deems fit to discuss development of Takaful business and also may hold such meetings on the request of Shariah Board of the Takaful operators. 36. Agent training.-Each Takaful operator shall include in its agent training course, a classroom course on Takaful concepts of a minimum of eight hours duration. Every agent of the Takaful operator intending to sell Takaful business shall be required to attend such course. 37. Business in rural areas.-To ensure a steady growth of Takaful business in all parts of Pakistan, the Takaful operator shall be encouraged to market Takaful products effectively in rural areas.

38. General.-(1) The provisions of the Ordinance, the Insurance Rules, 2002, and the Securities and Exchange Commission (Insurance) Rules, 2002, shall also be applicable in addition to these rules. (2) In case of any conflict between these rules and the Insurance Rules, 2002, and the Securities and Exchange Commission (Insurance) Rules, 2002, the provisions of these rules shall prevail. F.No.1(55)/ 2003-Ins.II (Munawar Akhtar Islam) Deputy Secretary

SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN

Islamabad, the 18th of February, 2011 NOTIFICATION

S.R.O. 128(I) /20111. In exercise of the powers conferred by section 33 of the Securities and Exchange Ordinance, 1969 (XVII of 1969) read with section 16 thereof and clause (b) of section 43 of the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997) and having been previously published in the official Gazette vide Notification No. S.R.O. 384(I)/2010, dated the 3rd June, 2010, as required by sub-section (2) of section 39 of the said Act XLII of 1997, the Securities and Exchange Commission of Pakistan with the approval of the Federal Government, hereby makes the following rules, namely:-

CHAPTER I PRELIMINARY

1.

Short title and commencement.- (1) These rules may be called the Securities (Leveraged Markets and Pledging) Rules, 2011. (2) They shall come into force at once. In these rules, unless there is anything repugnant in the subject or

2.

Definitions.__ (1) context,(a) (b) (c)

Annexure means Annexure to these rules; "authorized intermediary" means any person referred in sub-rule (2) of rule 3 registered with the Commission as an authorized intermediary under these rules; "borrower" means a person who borrows securities under these rules from a lender through the platform provided by an authorized intermediary for the purpose of securities lending and borrowing transactions;

Amended vide S.R.O. 1124(I)/2011 dated December 29, 2011, annexed at the end of these Rules

(d) (e) (f)

clearing company means a company registered as a clearing house under the Clearing Houses (Registration and Regulation) Rules, 2005; financee means the person availing the facility of margin financing or margin trading; "lender" means a person who lends securities to a borrower through the platform provided by an authorized intermediary for the purpose of securities lending and borrowing transactions; leveraged market means the market for offering any of the leveraged market contracts; leveraged market contracts means contracts relating to each of margin financing, margin trading and securities lending and borrowing; leveraged market participants means any of the parties to leveraged market contracts or a person offering any leveraged market contract; margin financier means such person registered and allowed under these rules to provide margin financing; margin financing means extension or maintenance of credit for the purpose of purchasing or carrying any security through an authorized intermediary, as provided in Chapter III; margin financing agreement means an agreement executed between the margin financier and the financee for the purpose of margin financing; margin trading means extension or maintenance of credit through the platform provided by an authorized intermediary for the purpose of purchasing or carrying any security, as provided in Chapter IV; Ordinance means the Securities and Exchange Ordinance, 1969 (XVII of 1969); regulations means regulations made by (i) (ii) (iii) a stock exchange, under the Ordinance; or a central depository, under the Central Depositories Act, 1997; or a clearing company, under its bye-laws,

(g) (h) (i) (j) (k)

(l) (m)

(n) (o)

for the respective leveraged market contracts with the previous approval of the Commission; (p) securities lending and borrowing means lending of securities by the lender and borrowing of securities by the borrower, through platform provided by an authorized intermediary, as provided in Chapter V; 2

(q) (r) (s)

significant shareholder means a person holding, directly or indirectly, ten percent or more shares in a company; spot period means the trading period as notified by the stock exchanges prior to the commencement of book closure; and trading financier means such person registered and allowed under these rules to provide financing under margin trading. All other words and expressions used but not defined in these rules shall, unless

(2)

there is anything repugnant in the subject or context, have the same meanings as assigned to them under the Ordinance, the Companies Ordinance, 1984 (XLVII of 1984) and the Central Depositories Act, 1997 (XIX of 1997).

CHAPTER II AUTHORIZED INTERMEDIARIES

3.

Authorized intermediary. (1) The Commission shall determine the number and places for the establishment of authorized intermediaries. (2) A stock exchange, central depository or clearing company desirous of providing a

platform to facilitate transactions relating to any of the leveraged market contracts may make an application to the Commission for the purpose of acting as an authorized intermediary for the respective leveraged market contracts. (3) The application under sub-rule (2) shall be accompanied by

(a) copies of documents showing the registration of the applicant as a stock exchange, central depository or a clearing company, as the case may be; (b) copies of Memorandum and Articles of Association;

(c) particulars of its chief executive officer and directors including their parentage, computerized national identity card numbers, residential addresses, directorships in other companies and significant shareholding in other companies;

(d) list of its members in case of a company having no share capital and significant shareholders in case of a company having share capital; (e) documents showing that satisfactory internal controls and written compliance procedures are available to act as authorized intermediary for the respective leveraged market contracts; (f) documents showing that adequate financial, technical, organizational and human resources are available to facilitate the activity of the respective leveraged market contracts in a proper and efficient manner, on an ongoing basis; (g) (h) (i) (4) a draft of regulations governing the respective leveraged market contracts; the fee as specified by the Commission; and such other document as may be required by the Commission. Upon receipt of the application under sub-rule (2) and the documents specified

under sub-rule (3), the Commission, if satisfied that (a) the applicant is eligible for acting as authorized intermediary;

(b) the applicant is in compliance with all applicable regulatory requirements and conditions; and (c) it is in the interest of the capital market for the applicant so to do,

may register the applicant as an authorized intermediary and grant certificate of registration as specified in Form I as set out in the Annexure and approve with or without modifications the regulations for the respective leveraged market contracts. (5) The Commission may, while registering an applicant as an authorized

intermediary, specify conditions for such registration to be complied by the authorized intermediary in such manner and time, as it may think fit. Refusal to grant registration. (1) No application for registration made under rule 3 shall be refused except after giving the applicant an opportunity of being heard.

4.

(2)

In case the Commission refuses to grant registration to an applicant, the decision

shall be communicated to the applicant stating therein the reasons for such refusal.

5.

Suspension or restriction of authorized intermediary. (1) its registration, if

The Commission may

by an order in writing impose any restrictions on an authorized intermediary or suspend

(a) the Commission, on reasonable grounds, believes that such action is in the interest of the capital market; (b) the authorized intermediary fails to comply with the provisions of the Ordinance, these rules, any regulations or any directive or circular issued by the Commission or any condition of registration specified by the Commission; (c) the authorized intermediary fails to effectively implement or comply with the regulations; (d) the authorized intermediary fails to make any amendments to the regulations as may be required by the Commission; (e) the authorized intermediary fails or refuses to furnish the information required under any law to be furnished or required by the Commission or furnishes incorrect or incomplete information; (f) the authorized intermediary fails or refuses to cooperate in any audit, enquiry, inspection or investigation ordered by the Commission; or (g) the authorized intermediary refuses or fails to pay a penalty, if any, imposed by the Commission. (2) The order of the Commission imposing any restriction or suspending the registration of the authorized intermediary shall state the period of restriction or suspension which shall not in the first instance exceed ninety days and such restriction or suspension may be extended by the Commission provided that the period of each such extension shall not exceed ninety days.

(3) The Commission while suspending the registration of an authorized intermediary may impose such conditions, as it deems proper, on the authorized intermediary.

(4) During the suspension the leveraged market contracts entered into before the suspension shall, subject to any directions issued by the Commission and regulations

made by authorized intermediary, continue to remain valid and leveraged market participants shall fulfill their respective obligations under such leveraged market contracts accordingly. 6. Cancellation of registration of authorized intermediary. (1) The Commission may cancel the registration of an authorized intermediary after providing it an opportunity of hearing, if (a) the cause of restriction or suspension of registration under rule 5 continues for a period of not less than ninety days; (b) the authorized intermediary refuses or fails to pay the penalty, if any, imposed by the Commission; (c) the Commission determines that cancellation of registration will be in the interest of the capital market; (d) a court of competent jurisdiction has passed a winding up order of the authorized intermediary or a resolution has been passed or petition has been filed for voluntary winding-up of the authorized intermediary; (e) the Commission, on reasonable grounds, believes that any other person referred to in sub-rule (2) of rule 3 will perform the functions of the authorized intermediary in a better and effective manner; (f) the authorized intermediary does not comply with the restrictions or conditions imposed by the Commission at the time of registration, restriction or suspension; or (g) the authorized intermediary requests the Commission, on reasonable grounds, to cancel its registration. (2) The Commission while cancelling the registration of an authorized intermediary

may take such measures and issue such directions as it deems fit.

7.

Conditions applicable to authorized intermediary. An authorized intermediary shall (a) provide a platform to facilitate transactions of the respective leveraged market contracts;

(b) ensure that the requirements of these rules, the regulations and the requirements specified by the Commission and directions of the Commission are being complied with; (c) ensure that a fair, transparent and efficient system for entering into and carrying out respective leveraged market contracts is provided in accordance with the regulations and all other applicable laws; (d) make suitable amendments in the regulations from time to time with the approval of the Commission; (e) correctly record all transactions relating to respective leveraged market contracts; (f) submit to the Commission such periodic returns and other information as specified by the Commission; (g) correctly disclose such information, as specified by the Commission, to the public relating to the respective leveraged market contracts; (h) collect and maintain margins specified in the regulations; (i) ensure that the total financing provided by a margin financier and/or trading financier at any point in time or total financing provided to a single financee or to clients of one broker or total financing provided in respect of any particular security, does not exceed the limits specified in the regulations; (j) ensure that the total financing obtained by a single financee or all financees or in any particular security, at any point in time, does not exceed the limits specified in the regulations; (k) ensure that total lending by a lender or borrowing by a borrower, at any point in time, of a particular security does not exceed the limits specified in the regulations; (l) not provide false or misleading or incomplete information to the Commission; (m) cooperate in any audit, enquiry, inspection or investigation ordered by the Commission; and (n) comply with such other directions as may be issued by the Commission. CHAPTER III MARGIN FINANCING

8.

Eligibility criteria for a margin financier. A person shall be eligible to apply for registration as a margin financier, if

(a)

such person is (i) (ii) a broker; a banking company as defined under the Banking Companies Ordinance, 1962 (LVII of 1962), with a minimum credit rating as specified in regulations;

(iii) a financial institution covered under section 3A of the Banking Companies Ordinance, 1962 (LVII of 1962) with a minimum credit rating as specified in regulations; (iv) an investment finance company licensed by the Commission to provide investment finance services with a minimum credit rating as specified in regulations; or (v) (b) (c) such other corporate entity as may be recommended by the authorized intermediary and approved by the Commission;

such person meets the minimum net capital and capital adequacy requirements specified in regulations; such person has adequate financial, technical, organizational and human resources for extension and maintenance of credit for the purpose of purchasing or carrying any security; such person is not in default of any regulatory requirement; such person has not been convicted of a fraud under any law, an offence under the laws administered by the Commission or any other offence involving moral turpitude and in case of a company none of its directors or significant shareholders, as the case may be, has been convicted of a fraud under any law, an offence under the laws administered by the Commission or any other offence involving moral turpitude; no investigation or enquiry has been concluded by the Commission with any adverse findings of mismanagement or misappropriation against such person or any of its directors or significant shareholders; no proceedings are pending with respect to its winding-up, insolvency or any analogous relief; in case of a broker, (i) it has valid trading rights on a stock exchange and such rights are not suspended;

(d) (e)

(f)

(g) (h)

(ii)

it is not in default of any payment obligations under the regulations of a stock exchange;

(iii) none of its significant shareholders, directors or chief executive officer by whatever name called have (i) remained a significant shareholder, director, chief executive officer, partner of a broker who has been expelled or declared a defaulter on account of default or any other reason under the stock exchange regulations; or

(ii) remained a broker who has been expelled or declared a defaulter on account of default or any other reason under the stock exchange regulations; (i) (j) (k) such person is a participant or accountholder in central depository system and its status as a participant or accountholder is not suspended or terminated; such person is a clearing member of a clearing company and its status as a clearing member is not suspended or terminated; and such person meets such other requirements as may be specified by the Commission.

9.

Registration of a margin financier. (1) A person eligible for registration under rule 8 may make an application to the authorized intermediary for registration which shall be accompanied by the following documents, namely: (a) documents showing that the requirements of clauses (a), (b), (c), (g), (h), (i) and (j) of rule 8 have been fulfilled; (b) in case the applicant is a company, Memorandum and Articles of Association; (c) in case the applicant is a company, particulars of its chief executive officer and directors including their parentage, computerized national identity card numbers, residential addresses, directorships in other companies and significant shareholding in other companies; (d) list of significant shareholders, in case the applicant is a company; (e) an affidavit, in the manner specified in Form-II set out in the Annexure, that the applicant is not in violation of the requirements of rule 8; (f) in case the applicant is a company, a copy of the latest audited financial statements or in the case of an individual a copy of the income tax return as submitted to the Federal Board of Revenue; 9

(g) evidence of payment of application fee, charges, deposits and contributions as specified in the regulations; and (h) any other document specified in the regulations. (2) If the authorized intermediary is satisfied that the eligibility criteria under rule 8 has been met with and the documents required under rule 9 have been submitted, the authorized intermediary may register the applicant as a margin financier.

(3) A margin financier shall not commence its business unless it has executed such agreements and assurances and furnished such documents as required by the authorized intermediary and specified in the regulations.

Explanation. For the purpose of clause (b) of sub-rule (1) of rule 9 where the applicant is a corporate entity the deponent shall be its chief executive officer, the chief compliance officer, company secretary or equivalent and where the applicant is a natural person the deponent shall be the applicant himself.

10.

Refusal to grant registration. (1) No application for registration made under rule 9 shall be refused except after giving the applicant an opportunity of being heard.

(2) In case the authorized intermediary refuses to grant registration to an applicant, the decision shall be communicated to the applicant stating therein the reasons for such refusal.

11.

Restriction or suspension of a margin financier. (1) The authorized intermediary may suspend or restrict with immediate effect a margin financier from providing margin financing and shall immediately notify to the Commission and market participants of such restriction or suspension, if such financier (a) is not in compliance with the eligibility conditions specified in rule 8;

10

(b) fails or refuses to comply with any provision of these rules or any directions, orders or circulars issued by the Commission; (c) fails or refuses to comply with the regulations; or (d) is in breach of any obligation under an agreement or security furnished to the authorized intermediary or performance of any of the material obligations under any such agreement or security becomes unlawful or any such agreement or security is declared to be void or is repudiated or its validity or enforceability at any time is challenged by the margin financier or any party furnishing such security. (2) Where the authorized intermediary neglects or fails to restrict or suspend a margin financier under sub-rule (1), the Commission may restrict or suspend the margin financier from providing margin financing.

12.

Cancellation of registration of margin financier. (1) The authorized intermediary may, after providing an opportunity of hearing to a margin financier, cancel its registration, if (a) (b) (c) (d) (e) (f) (g) it is not in compliance with the eligibility conditions specified in rule 8; the cause of restriction or suspension under rule 11 continues for more than fortyfive days; the margin financier does not furnish the information required by the authorized intermediary or the Commission or furnishes incomplete or incorrect information; it fails or refuses to cooperate in any audit, enquiry, inspection or investigation ordered by the Commission; a court of competent jurisdiction orders the winding-up or liquidation of the margin financier; any steps are taken for the winding-up of the margin financier by its shareholders or creditors; or a receiver, administrator or similar official is appointed in respect of the margin financier or a substantial part of its assets. Where upon occurrence of any of the events described in sub-rule (1), the

(2)

authorized intermediary fails to cancel the registration of the authorized financier, the

11

Commission may, after providing an opportunity of hearing to the margin financier, direct the authorized intermediary to cancel the registration of such margin financier and upon such direction the authorized intermediary shall immediately cancel the registration of such margin financier.

13.

Conditions applicable to margin financiers. A margin financier shall (a) only extend margin financing for purchases or carrying of securities in respect of trades carried out on a stock exchange; (b) not extend margin financing without first executing a margin financing agreement with the financee which shall inter alia contain provisions prescribed in Form V as set out in the Annexure; (c) at all times comply with the regulations and all directives or circulars as may be issued by the Commission; (d) ensure that true and complete information is passed on to the authorized intermediary; and (e) ensure compliance with the provisions of the Anti-Money Laundering Act, 2010 (Act VII of 2010) and any rules and regulations made thereunder.

14.

Additional conditions applicable to brokers who are margin financiers. In addition to the provisions of rule 13, a broker which is registered as a margin financier shall (a) (b) (c) (d) (e) provide margin financing by using its own funds or funds borrowed from financial institutions specified in sub-clauses (ii), (iii) and (iv) of clause (a) of rule 8; not use the funds of any of its clients for providing margin financing to any other person or for proprietary account; not provide margin financing except through the platform provided by the authorized intermediary; not provide margin financing to any client without evaluating the creditworthiness of the client through a proper credit risk assessment methodology; and not provide margin financing to any person who is not its client.

12

15.

Regulatory requirements for margin financing.-The authorized intermediary shall specify, in such manner as the Commission may direct, the following matters, namely:(a) the selection criteria, including the minimum liquidity requirements, for securities for which margin financing can be obtained; (b) the maximum limits of margin financing which may be obtained by a broker for its proprietary position, by a single client through one or more brokers or by all the clients of a single broker or by a broker collectively for proprietary account and trading for client; (c) the maximum limits of margin financing which may be obtained by a broker for its proprietary position, by a single client through one or more brokers or by all the clients of a single broker or by a broker collectively for proprietary account and trading for client, at any point of time, in a particular scrip; (d) the percentage of the total value of securities financed under margin financing which shall be paid by the financee in cash as financees minimum equity participation for the purchase of such securities; (e) suspension or disciplining of margin financiers including grounds for taking such action; (f) (g) terms and conditions under which margin financing may be provided; recording and publishing of details of margin financing by the authorized intermediary; (h) (i) fees, charges, contributions and deposits payable in respect of margin financing; reporting details relating to margin financing from margin financier and such brokers who are financees or acting on behalf of such clients who are financees; and (j) any other matter as deemed necessary for the effective implementation and enforcement of these rules.

13

CHAPTER IV MARGIN TRADING

16.

Eligibility criteria for trading financier. A person shall be eligible to apply for registration as a trading financier, if (a) such person is (i) (ii) a broker; a banking company as defined under the Banking Companies Ordinance, 1962 (LVII of 1962), with a minimum credit rating as specified in regulations;

(iii) a financial institution covered under section 3A of the Banking Companies Ordinance, 1962 (LVII of 1962) with a minimum credit rating as specified in regulations; (iv) an investment finance company licensed by the Commission to provide investment finance services with a minimum credit rating as specified in regulations; (v) a collective investment scheme as defined in the Non-banking Finance Companies and Notified Entities Regulations, 2008 and categorized as equity scheme or any scheme launched for the purpose of investment in margin trading provided its constituent documents allow such scheme to provide financing for margin trading;

(vi) such other corporate entity as may be recommended by the authorized intermediary and approved by the Commission;

(b) such person meets the minimum net capital and capital adequacy requirements specified in regulations; (c) such person has adequate financial, technical, organizational and human resources for extension or maintenance of credit for the purpose of purchasing or carrying any security; (d) such person is not in default of any regulatory requirement; (e) such person has not been convicted of a fraud under any law, an offence under the laws administered by the Commission or any other offence involving moral turpitude and in case of a company or an asset management company, none of its directors and significant shareholders, as the case may be, has been convicted of a fraud under any law,

14

an offence under the laws administered by the Commission or any other offence involving moral turpitude; (f) no investigation or enquiry has been concluded against it by the Commission with any adverse findings of mismanagement or misappropriation and in case of a company or an asset management company (where applicant is a collective investment scheme) no such findings have been recorded against any of its directors or significant shareholders; (g) no proceedings are pending with respect to its winding-up, insolvency or any analogous relief; (h) in case of a broker, (i) (ii) (iii) it has valid trading rights on a stock exchange and such rights are not suspended; it is not in default of any payment obligations under the regulations of a stock exchange; none of its significant shareholders, directors or chief executive officer, by whatever name called, have (i) remained a significant shareholder, director, chief executive officer, partner of a broker who has been expelled or declared a defaulter on account of default or any other reason under the stock exchange regulations; or (ii) remained a broker who has been expelled or declared a defaulter on account of default or any other reason under the stock exchange regulations; (i) such person is a participant or accountholder in a central depository system and its status as a participant or accountholder is not suspended or terminated; (j) such person is a clearing member of a clearing company and its status as a clearing member is not suspended or terminated; and (k) such person meets with such other requirements as may be specified by the Commission. Registration of a trading financier. (1) A person eligible for registration under rule 16 may make an application to the authorized intermediary for registration which shall be accompanied by the following documents, namely:

17.

15

(a) documents showing that the requirements of clauses (a), (b), (c), (g), (h), (i) and (j) of rule 16, have been fulfilled; (b) in case the applicant is a company, Memorandum and Articles of Association and in case of a collective investment scheme, its constituent documents; (c) in case the applicant is a company, particulars of its chief executive officer and directors including their parentage, computerized national identity card numbers, residential addresses, directorships in other companies and significant shareholding in other companies and in case of a collective investment scheme, similar particulars of the chief executive officer and directors of the asset management company; (d) list of significant shareholders, in case the applicant is a company; (e) an affidavit, in the manner specified in Form-III as set out in the Annexure that the applicant is not in violation of the requirements of rule 16; (f) in case the applicant is a company, a copy of the latest audited financial statements or in the case of an individual a copy of the income tax return as filed with the Federal Board of Revenue; (g) evidence of payment of application fee, charges, deposits and contributions as specified in the regulations; and (h) any other document specified in or required by the regulations. (2) If the authorized intermediary is satisfied that the eligibility criteria under rule 16

has been satisfied and the documents required under rule 17 have been submitted, the authorized intermediary may register the applicant as a trading financier.

(3)

A trading financier shall not commence its business as a trading financier unless it

has executed such agreements and assurances and furnished such documents as required by the authorized intermediary and specified in the regulations.

Explanation. For the purpose of clause (b) of sub-rule (1) where the applicant is a corporate entity the deponent shall be the chief executive officer, the chief compliance officer, company secretary or equivalent of the applicant and where the applicant is a natural person the deponent shall be the applicant himself.

16

18.

Refusal to grant registration. (1) No application for registration made under rule 17 shall be refused except after giving the applicant an opportunity of being heard.

(2)

In case the authorized intermediary refuses to grant registration to an applicant, the

decision shall be communicated to the applicant stating therein the reasons for such refusal.

19.

Restriction or suspension of a trading financier. (1) The authorized intermediary may immediately restrict a trading financier from providing financing for margin trading and shall immediately notify to the Commission and market participants of such restriction or suspension, if such trading financier (a) after registration is not in compliance with the eligibility conditions specified in rule 16; (b) fails or refuses to comply with any provision of these rules or any directions, orders or circulars issued by the Commission; (c) fails or refuses to comply with the regulations; or (d) is in breach of any obligation under an agreement or security furnished to the authorized intermediary or performance of any of the material obligations under any such agreement or security becomes unlawful or any such agreement or security is declared to be void or is repudiated or its validity or enforceability at any time is challenged by the trading financier or any party furnishing such security.

(2)

Where the authorized intermediary neglects or fails to restrict or suspend a trading

financier under sub-rule (1), the Commission may restrict or suspend such trading financier.

20.

Cancellation of registration of a trading financier. (1) The authorized intermediary may, after providing an opportunity of hearing to a trading financier, cancel the registration of such trading financier and shall immediately notify to the Commission of such cancellation, if

17

(a) the cause of restriction or suspension under rule 19 continues for more than forty five days; (b) the trading financier fails or refuses to furnish the information required by the authorized intermediary or Commission, or furnishes incomplete or incorrect information; (c) it fails or refuses to cooperate in any audit, enquiry, inspection or investigation ordered by the Commission; (d) a court of competent jurisdiction orders winding up or liquidation of the trading financier; (e) any step has been taken to seek voluntary winding-up of the trading financier by its shareholders or creditors; or (f) a receiver, administrator or similar official is appointed in respect of the trading financier or a substantial part of its assets.

(2) Upon occurrence of any of the events described in sub-rule (1), the Commission may, after providing an opportunity of hearing to a trading financier, direct the authorized intermediary to cancel the registration of such trading financier and upon such direction the authorized intermediary shall immediately cancel the registration of such trading financier.

21.

Conditions applicable to trading financiers. A trading financier shall (a) (b) (c) (d) only extend financing to finance purchases or carrying securities in respect of trades carried out on a stock exchange; at all times comply with the regulations and all directives or circulars as may be issued by the Commission; ensure that true and complete information is passed on to the authorized intermediary; and ensure compliance with the provisions of the Anti-Money Laundering Act, 2010 (Act VII of 2010) and any rules and regulations made thereunder.

18

22.

Additional conditions applicable to brokers who are trading financiers. (1) In addition to the provisions of rule 21, a broker who is registered as a trading financier shall (a) provide financing under margin trading by using his own funds or funds borrowed from financial institutions specified in sub-clauses (ii), (iii) and (iv) of clause (a) of rule 16 or subject to sub-rule (2) use the funds of his corporate clients, provided the broker has entered in to an agreement with such corporate clients, which shall contain inter alia the provisions prescribed in Form VI as set out in the Annexure; (b) not use the funds of any client, except as provided in clause (a), for providing financing under margin trading to any other person or for proprietary account; and (c) not provide financing under margin trading except through the platform provided by the authorized intermediary.

(2)

The Commission may, where it deems necessary in the interest of the market,

(a) lay down eligibility criteria for corporate clients which may provide funds to brokers for providing finance under margin trading. (b) restrict or prohibit the use of funds of corporate clients by brokers generally or otherwise.

23.

Regulatory requirements for Margin Trading.- (1) The authorized intermediary shall specify, in such manner as the Commission may direct, the following matters, namely:(a) the selection criteria, including the minimum liquidity requirements, for securities for which financing can be obtained by margin trading; (b) risk management systems, including but not limited to collateral and margin requirements, exposure margins, position limits, collection of mark to market losses, deposits provided that all margins, deposits and mark to mark losses shall be payable in cash only; (c) the maximum limits of financing which may be obtained by a broker for its proprietary position, by a single client of a broker or by all the clients of a single broker, or by the broker collectively for proprietary account and trading for client;

19

(d) the maximum limits of financing which may be obtained by a broker for its proprietary position, by a single client of a broker or by all the clients of a single broker, or by the broker collectively for proprietary account and trading for client, at any point of time in a particular scrip; (e) the percentage of the total value of securities financed in margin trading which shall be paid by the financee only in cash as financees minimum equity participation for the purchase of such securities provided that such percentage shall not be less twenty-five per cent and provided that such equity participation shall be paid by the financee from his own sources and not through any form of financing or credit from the broker; (f) suspension or disciplining of a trading financier including grounds for taking such action; (g) terms and conditions under which margin trading may be undertaken; (h) the contract period provided that such contract period shall not exceed sixty days; (i) recording and publishing of details of margin trading by the authorized intermediary; (j) fee, charges, contributions and deposits payable in respect of margin trading; (k) reporting details relating to margin trading from a trading financier and such brokers who are financees or acting on behalf of such clients who are financees; and (l) any other matter as deemed necessary for the effective enforcement of these rules.

(2)

The funds provided by a corporate client of a broker for margin trading as

provided in clause (a) of rule 22 shall be from its surplus funds and provided with the approval of its board of directors.

20

CHAPTER V SECURITIES LENDING AND BORROWING

24.

Eligibility criteria for securities lender and borrower. A person shall be eligible to apply for registration as a securities lender and borrower, if (a) such person is (i) a broker;

(ii) a banking company defined under the Banking Companies Ordinance, 1962 (LVII of 1962), with a minimum credit rating as specified in regulations; (iii) a financial institution covered under section 3A of the Banking Companies Ordinance, 1962 (LVII of 1962) with a minimum credit rating as specified in regulations; (iv) an investment finance company licensed by the Commission to provide investment finance services with a minimum credit rating as specified in regulations; or (v) such other person as may be recommended by the authorized intermediary and approved by the Commission.

(b) such person meets the minimum net capital and capital adequacy requirements specified in regulations; (c) such person has adequate financial, technical, organizational and human resources to undertake the transaction of securities borrowing and lending; (d) such person is not in default of any regulatory requirement;

(e) such person has not been convicted of a fraud under any law, an offence under the laws administered by the Commission or any other offence involving moral turpitude and in case of firms and companies none of their partners, directors and significant shareholders, as the case may be, has been convicted of a fraud under any law, offence under the laws administered by the Commission or any other offence involving moral turpitude; (f) no investigation or enquiry has been concluded by the Commission with any adverse findings of mismanagement or misappropriation against such person or any of their directors, significant shareholders or partners, as the case may be;

21

(g) no proceedings are pending with respect to its winding-up or insolvency or an analogous relief; (h) in case of a broker, (i) it has valid trading rights on a stock exchange and such trading rights are not suspended; (ii) it is not in default of any payment obligations under the regulations of a stock exchange; (iii) none of its significant shareholders, directors or chief executive officer, by whatever name called, have (i) remained a significant shareholder, director, chief executive officer, partner of a broker who has been expelled or declared a defaulter on account of default or for any other reason under the stock exchange regulations; or (ii) remained a broker who has been expelled or declared a defaulter on account of default or for any other reason under the stock exchange regulations; (i) such person is a participant or accountholder in a central depository system and its status as a participant or accountholder is not suspended; (j) such person is a clearing member of a clearing company and its status as a clearing member is not suspended or terminated; and (k) such person meets such other requirements as may be specified by the Commission. 25. Registration of a securities lender and borrower. (1) A person eligible for

registration under rule 24 may make an application to the authorized intermediary for registration which shall be accompanied by the following documents, namely:

(a) documents showing that the requirements of clauses (a), (b), (c), (g), (h) (i) and (j) of rule 24 have been fulfilled; (b) in case the applicant is a company, Memorandum and Articles of Association; (c) in case the applicant is a company, particulars of its chief executive officer and directors including their parentage, computerized national identity card numbers, residential addresses, directorships in other companies and significant shareholding in other companies;

22

(d) list of significant shareholders, in case the applicant is a company; (e) an affidavit, in the manner specified in Form-IV as set out in the Annexure, that the applicant is not in violation of the requirements of clauses (d), (e) and (f) of rule 24; (f) in the case of a company, a copy of the latest audited financial statements or in the case of an individual a copy of the income tax return as filed with the Federal Board of Revenue; (g) evidence of payment of application fee, charges, deposits and contribution specified in the regulations; and (h) any other document specified in or required by the regulations. (2) If the authorized intermediary is satisfied that, the eligibility criteria under rule 24 as

has been satisfied and the documents required under rule 25(1) have been submitted, the authorized intermediary may register the applicant as a securities lender and borrower.

(3)

A securities lender or borrower shall not commence its business as a securities

lender or borrower, as the case may be, unless he has executed such agreements and assurances and furnished such documents as required by the authorized intermediary and specified in the regulations.

Explanation. For the purpose of clause (b) of sub-rule (1) where the applicant is a corporate entity, the deponent shall be its chief executive officer, chief compliance officer, company secretary or equivalent and where the applicant is a natural person, the deponent shall be the applicant himself.

26.

Refusal to grant registration. (1) No application for registration made under rule 25 shall be refused except after giving the applicant an opportunity of being heard.

(2)

In case the authorized intermediary refuses to grant registration to an applicant, the

decision shall be communicated to the applicant stating therein the reasons for such refusal.

23

27.

Restriction or suspension of a securities lender and borrower. (1) The authorized intermediary may immediately restrict or suspend a securities lender and borrower from securities lending and borrowing and shall immediately notify to the Commission and the market participants of such restriction or suspension, if the securities lender and borrower (a) after registration is not in compliance with the eligibility conditions specified in rule 24; or (b) fails or refuses to comply with any provision of these rules or any directions, orders or circulars issued by the Commission from time to time; (c) fails or refuses to comply with the regulations; (d) is in breach of any obligation under an agreement or security furnished to the authorized intermediary or performance of any of the material obligations under any such agreement or security becomes unlawful or any such agreement or security is declared to be void or is repudiated or its validity or enforceability at any time is challenged by the securities lender and borrower or any party furnishing such security; or (e) is in a situation where a receiver, administrator or similar official is appointed in respect of the trading financier or a substantial part of its assets. (2) Where the authorized intermediary neglects or fails to restrict or suspend a

securities lender and borrower under sub-rule (1) of rule 27, the Commission may restrict or suspend the securities lender and borrower.

28.

Cancellation of registration of a securities lender and borrower. (1) The authorized intermediary may, after providing an opportunity of hearing to the securities lender and borrower, cancel its registration and shall immediately notify to the Commission of such cancellation, if (a) it is not in compliance with the eligibility conditions specified in rule 24; (b) the cause of restriction under rule 27 continues for more than forty-five days; (c) it does not furnish the information required by the authorized intermediary or Commission, or furnishes incomplete or incorrect information;

24

(d) it refuses or fails to cooperate in any audit, enquiry, inspection or investigation ordered by the Commission; (e) a court of competent jurisdiction orders winding up or liquidation of the securities lender and borrower; or (f) any step has been taken to seek voluntary winding-up of the securities lender and borrower by its shareholders or creditors. (2) Upon occurrence of any of the events described in sub-rule (1), the Commission may, after providing an opportunity of hearing to a securities lender and borrower, direct the authorized intermediary to cancel the registration of such securities lender and borrower and upon such direction the authorized intermediary shall immediately cancel the registration of such securities lender and borrower.

29.

Conditions applicable to securities lender and borrower. (1) A securities lender and borrower shall (a) only lend or borrow securities through the platform provided by the authorized intermediary; (b) not lend or borrow securities for his own benefit or on behalf of a client, whether directly or indirectly, of any company where such lender and borrower or the client is (i) (ii) a director or sponsor; an associated company and associated undertaking;

(iii) a shareholder who is barred from selling such securities; or (iv) any other person as may be specified by the Commission; (c) be eligible to lend or borrow any security or arrange for lending or borrowing of any security for his own benefit or on behalf of its clients; (d) at all times comply with the regulations and all directives or circulars as may be issued by the Commission; (e) ensure that true and complete information is passed on to the authorized intermediary; and (f) ensure compliance with the provisions of the Anti-Money Laundering Act, 2010 (Act VII of 2010) and any rules and regulations made thereunder.

25

(2)

All securities lending and borrowing contracts shall stand released on the last

working day before the start of a spot period relating to that security and lenders and borrowers shall not lend or borrow securities during the spot period.

30.

Regulatory requirements for securities lending and borrowing.-

The authorized

intermediary shall specify, in such manner as the Commission may direct, the following matters, namely: (a) risk management systems, including but not limited to collateral and margin requirements, exposure margins, position limits, collection of mark to market losses, forms of deposits, etc. ; (b) the manner in which the authorized intermediary shall put in place a system whereby the(i) lender agrees to lend a specified number and class of securities to the borrower at an agreed rate of return, through a platform provided by the authorized intermediary; and (ii) borrower agrees to borrow a specified number and class of securities at an agreed rate or return and to return the same to the lender, together with the agreed return, through a platform provided by the authorized intermediary. (c) selection criteria, including minimum liquidity requirements, for securities which shall be available for lending and borrowing; (d) the manner in which the margins including marked-to-market losses shall be deposited by the lender and borrower; (e) suspension or discipline of securities lending and borrower including grounds for taking such actions; (f) terms and conditions under which securities lending and borrowing may be undertaken; (g) recording and publishing of details of securities lending and borrowing by the authorized intermediary; (h) fee, charges, contributions and deposits payable for facilities and services provided for securities lending and borrowing; and (i) any other matter as deemed necessary for the effective enforcement of these rules.

26

CHAPTER VI PLEDGING

31.

Conditions applicable for pledge of securities.

No broker shall pledge or deposit

any security on account of a client as collateral except as provided below, namely: (a) the pledge or deposit is in favour of or with a stock exchange or a clearing company in respect of margin requirements relating to the transactions or trades of such client as required under the relevant regulatory framework; (b) the pledge or deposit is in favour of or with a financial institution in respect of margin financing extended by such financial institutions in respect of transactions of such clients under the margin financing facility or any other form of financing as allowed by the Commission; (c) the pledge or deposit is in favour of or with a financial institution to borrow funds, provided that the client has authorized the broker in the manner specified by the Commission; and (d) the pledge or deposit is for any other purpose as permitted under applicable laws and regulations, provided the client has authorized the broker in the manner specified by the Commission.

CHAPTER VII MISCELLANEOUS

32.

Power of the Commission to issue directives, circulars, etc. - The Commission may issue such directives and circulars, as are necessary to carry out the purposes of these rules.

33.

Brokers obligations. (1)

In addition to the brokers obligations under the Brokers

and Agents Registration Rules, 2001, a broker acting on behalf of its clients in any of the leveraged markets or pledging the securities of a client shall ensure that

27

(a) no transaction is executed by the broker on behalf of a client unless an appropriate agreement has been executed between the broker and such client; (b) all provisions of the Anti-Money Laundering Act, 2010 (Act VII of 2010) and any rules and regulations made thereunder are complied with at all times; (c) all risks involved in the relevant transactions have been fully disclosed and the broker has obtained a written confirmation from its clients that they have understood and have the ability to bear the risks in such transactions; and (d) the options available to a client in respect of various financing facilities in the securities markets have been fully disclosed and explained to the clients. (2) The broker shall evaluate the credit worthiness of its clients through a proper

credit risk assessment methodology and assign credit limits to each client beyond which the client shall not be allowed to avail financing under margin financing and margin trading.

(3)

A broker shall maintain records in respect of its compliance with the aforesaid

obligations and such records shall be open to inspection by the Commission at any time.

34.

Prohibition. No person shall carry on any activity, or purport to do so, which is covered under these rules or under section 16 of the Ordinance except in accordance with and to the extent permitted by the provisions of these rules, regulations or any directives or circulars issued by the Commission.

35.

Fee.

The Commission may from time to time specify such fee as may be required

under these rules.

36.

Penalty. A person who contravenes or fails to comply with any provision of these rules regulations or any directives or circulars issued under the Ordinance by the Commission, shall, in addition to any action authorized under these rules, be liable to any and all actions authorized by the Ordinance for such contravention or failure.

37.

Repeal.

The

Margin

Trading

Rules,

2004

are

hereby

repealed. 28

Annexure [see rule 2(1)(a)] FORM I

[See rule 3(4)]

SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN

CERTIFICATE OF REGISTRATION AUTHORIZED INTERMEDIARY

In exercise of the powers conferred by rule 3 of Securities (Leveraged Markets and Pledging) Rules, 2011 the Securities and Exchange Commission of Pakistan hereby grants a certificate of registration to ________________________________________, as an Authorized Intermediary subject to the conditions prescribed under the Securities (Leveraged Markets and Pledging) Rules, 2011 or as may be specified or imposed hereafter by the Commission.

The registration number of the authorized intermediary is ______________________.

Dated: _________________

Place: ISLAMABAD

By order

Sd/For and on behalf of THE SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN

29

FORM II

[See rule 9 (1) (e)]

AFFIDAVIT

Affidavit of _______________________ daughter/son/wife of _____________________ resident of ______________________________________________________ and holding CNIC/Passport No. ______________________________

I the above named deponent, do hereby state on oath/solemnly affirm as under:1.

2

That I am the _________________________ of __________________, and I am well

conversant with the facts deposed below.. 2. 3.

3 4

__________ is not in default of any regulatory requirement. __________ has not been convicted of any fraud under any law, any offence under the

laws administered by the Commission or any other offence involving moral turpitude.
5

[None

of

the

partners,

directors

and

significant

shareholders

of

_______________________, as the case may be, has been convicted of a fraud under any law, an offence under the laws administered by the Commission or any other offence involving moral turpitude. 4. No adverse findings of mismanagement or misappropriation have been given against ___________________________
6

[or any of its partners, directors or significant

shareholders] in any inquiry or investigation ordered by the Commission. 5.

7

__________ is not undergoing any proceedings with respect to insolvency nor any such

proceedings are threatened.

2 3

Where applicant is a body corporate or a firm Name of the applicant 4 Name of the applicant 5 Where applicant is a body corporate or a firm 6 Where applicant is a body corporate or a firm

30

6.

The statements made and the information given along with the application under rule 8 of the Securities (Leveraged Markets and Pledging) Rules, 2011 is correct and that there are no facts which have been concealed.

7.

That I have no objection if the Securities and Exchange Commission of Pakistan requests or obtains information about me from any third party.

8.

That all the documents provided to Securities Exchange Commission of Pakistan are true and complete copies of the originals.

DEPONENT

The Deponent is identified by me

Signature _______________________ ADVOCATE (Name)

Solemnly affirmed before me on this ______ day of _____________ at ______________ by the Deponent above named who is identified to me by ________________, Advocate.

Signature______________________________ OATH COMMISSIONER FOR TAKING AFFIDAVIT (Name and Seal)

Name of the applicant

31

FORM III

[See rule 17(1)(e)]

AFFIDAVIT

Affidavit of _______________________ daughter/son/wife of _____________________ resident of ______________________________________________________ and holding CNIC/Passport No. ______________________________

I the above named deponent, do hereby state on oath/solemnly affirm as under:1.

8

That I am the _________________________ of __________________, and I am well

conversant with the facts deposed below.. 2.

3.
9

__________ is not in default of any regulatory requirement. __________ has not been convicted of a fraud under any law, any offence under the

10

laws administered by the Commission or any other offence involving moral turpitude.
11

[None

of

the

partners,

directors

and

significant

shareholders

of

_______________________, as the case may be, has been convicted of a fraud under any law, an offence under the laws administered by the Commission or any other offence involving moral turpitude.
4.

No adverse findings of mismanagement or misappropriation have been given against ___________________________

12

[or any of its partners, directors or significant

shareholders] in any inquiry or investigation ordered by the Commission.

5.
13

__________ is not undergoing any proceedings with respect to insolvency nor any such

proceedings are threatened.

8 9

Where applicant is a body corporate or a firm Name of the applicant 10 Name of the applicant 11 Where applicant is a body corporate or a firm 12 Where applicant is a body corporate or a firm

32

6.

The statements made and the information given along with the application under rule 8 of the Securities (Leveraged Markets and Pledging) Rules, 2011 is correct and that there are no facts which have been concealed.

7.

That I have no objection if

14

________________________________ requests or obtains

information about me from any third party. 8. That all the documents provided to
15

_____________________________________ are

true and complete copies of the originals.

DEPONENT

The Deponent is identified by me

Signature _______________________ ADVOCATE (Name)

Solemnly affirmed before me on this ______ day of _____________ at ______________ by the Deponent above named who is identified to me by ________________, Advocate.

Signature______________________________ OATH COMMISSIONER FOR TAKING AFFIDAVIT (Name and Seal)

13 14

Name of the applicant Name of the authorized intermediary 15 Name of the authorized intermediary

33

FORM IV [See rule 25(1) (e)]

AFFIDAVIT

Affidavit of _______________________ daughter/son/wife of _____________________ resident of ______________________________________________________ and holding CNIC/Passport No. ______________________________ 1.
16

That I am the ________________________ of __________________, and I am well

conversant with the facts deposed below. 2. 3.

17 18

__________ is not in default of any regulatory requirement. __________ has not been convicted of any fraud offence under the laws administered by
19

the Commission or any other offence involving moral turpitude.

[None of the partners,

directors and significant shareholders of _______________________, as the case may be, has been convicted of any fraud, offence under the laws administered by the Commission or any other offence involving moral turpitude. 4. No adverse findings of mismanagement or misappropriation have been given against ___________________________
20

[or any of its partners, directors or significant

shareholders] in any inquiry or investigation ordered by the Commission. 5.

21

__________ is not undergoing any proceedings with respect to insolvency nor any such

proceedings are threatened. 6. The statements made and the information given along with the application under rule 8 of the Securities (Leveraged Markets and Pledging) Rules, 2011 is correct and that there are no facts which have been concealed.
16 17

Where applicant is a body corporate or a firm Name of the applicant 18 Name of the applicant 19 Where applicant is a body corporate or a firm 20 Where applicant is a body corporate or a firm 21 Name of the applicant

34

7.

That I have no objection if

22

________________________________ requests or obtains

information about me from any third party. 8. That all the documents provided to
23

_____________________________________ are

true and complete copies of the originals.

DEPONENT

The Deponent is identified by me

Signature _______________________ ADVOCATE (Name)

Solemnly affirmed before me on this ______ day of _____________ at ______________ by the Deponent above named who is identified to me by ________________, Advocate.

Signature______________________________ OATH COMMISSIONER FOR TAKING AFFIDAVIT (Name and Seal)

22 23

Name of the authorized intermediary Name of the authorized intermediary

35

Form V [See rule 13 (b)] The margin financing agreement shall, inter alia, specify the following, namely:-

(a) (b) (c) (d) (e) (f) (g) (h)

Name of the margin financier and financee; Date and term of the agreement; Margin financing limits; Markup or profit rate applicable for margin financing; Acceptable form of collateral to be deposited by the financee; Terms of agreement with provisions for renewal; Securities for which margin financing shall be provided; Conditions under which agreement may be altered, terminated and implications thereof;

(i)

Default management procedures that shall apply in the event of default by a margin financier or financee in completing their respective obligations as per rules; and

(j)

Signature(s) of the authorized persons of margin financiers and financee.

36

Form VI [See rule 22(1)(a)] The agreement between a broker and its client for use of clients funds for providing financing for margin trading shall, inter alia, specify the following, namely:-

(a) (b) (c) (d)

Names and particulars of the parties; Date and term of the agreement; Financing Limits under margin trading; Representation by the client that the funds being provided for margin trading are its own funds and not obtained or borrowed from any other person..

(d) (e) (e) (f) (g) (h)

Terms and conditions for markup or profit rates to be charged; Applicable fee and charges; Rights and obligation of both parties; Terms of agreement with provisions for renewal; Securities for which financing shall be provided in margin trading; Conditions under which agreement may be altered, terminated and implications thereof;

(i) (j)

Adequate disclosures of risks Default management procedures that shall apply in the event of default in completing their respective obligations as per the Rules and authorized intermediarys regulations approved by the Commission; and

(k)

Signature(s) of the authorized representative of the parties.

______________________________________________________________________________ [No. SMD/SE/2(6)2002]

Sd/Abdul Rehman Qureshi Advisor/ Secretary

37

SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN NOTIFICATION Islamabad, the 29th December, 2011

S.R.O. 1124(I)/2011 .- In exercise of powers conferred by section 33 and section 16 of the Securities and Exchange Ordinance, 1969 (XVII of 1969) read with clause (b) of section 43 of the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997) and having been previously published in the official Gazette vide Notification No. SRO No. 946 (I)/2011 dated the 6th October 2011, as required by sub-section (2) of section 39 of the said Act, the Securities and Exchange Commission of Pakistan, with the approval of the Federal Government, hereby makes the following amendments in the Securities (Leveraged Markets and Pledging) Rules, 2011, namely:AMENDMENTS In the aforesaid Rules,(a) in rule 15, in clause (a), for the commas and words , including the minimum liquidity requirements, for the word of shall be substituted; (b) in rule 22,(i) in sub-rule (1), in clause (a) the word corporate occurring twice, shall be omitted; and (ii) in sub-rule (2),(a) in clause (a) the word corporate shall be omitted; and (b) in clause (b) the word corporate shall be omitted; (c) in rule 23, in sub-rule (1),(i) in clause (b), the words and comma all margins, deposits and shall be omitted; and (ii) in clause (e),(a) the words only in cash shall be omitted; and (b) the words provided that such percentage shall not be less than twenty-five per cent and shall be omitted. No. SMD/SE/2(6)2002

-sd(Abdul-Rehman Qureshi) Advisor/Secretary

38

REGISTERED No. M 302 L.-7646

EXTRAORDINARY PUBLISHED BY AUTHORITY

i 1

ISLAMABAD, FRIDAY, MARCH 8, 2013

PART n
Statutory Notifications (S. R 0.)
GOVERNMENT OF PAKISTAN

i
I

SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN

the 8th M
S. R 0. 180 (I)/2013.-In exercise of the powers conferred by section 506 of the Companies Ordinance, 1984 (XLVII of 1984) read with clause (b) of section43 of the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997). the Securities and Exchange Commission of Pakistan, with the approval of the Federal Government, is pleased to make the following ~ l e sthe , same have been previously published vide Notification No. S.R.O. 283(I)/2012 dated the 22nd March, 2012, namely:-

PUBLIC SECTOR COMPANIES (CI

I'E GOVERNANCE) RULES, 2013

1. Short title, Icommencement and applicability.-(I) These Rules may be:called the Public S'ector Conlpanies (Corporate Governance) Rules, 2013. : y shall come into 1brce after ninety days of the issuance of this notifica (619)
iaz.]

Price: Rs. 20.50

620

THE G A Z E I T ? OF PAKISTAN, EXTRA., MARCH 8, 2013

PART^

(3) These rules shall apply to all Public Sector Companies, as defined in :g) of rule 2.
In the case of listed Public Sector Companies, where there is any inconsistency with the Code of Corporate Governance, the provisions of these rules shall prevail.
(4)

2. Definitions.-(I the subject or context:

(a)
(b)

less there is anything repugnant in

"Board" meanri board of directors of a Public Sector Company; "Commission" m m o n r the Securities and Exchange Commission of Pakistan established under the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997); "Executive" means an employee of aPublic Sector Company, who is entrusted with responsibilities of an administrativeor managerial nature, including the Chief Executive and Executive Director; "Independent L . , , , means a Non-Executive Director who is not in the service of Pakistan or of any statutory body or any body or -institution owned or controlled by the Government and who is not connected or does not have any other relationship, whether pecuniary or otherwise,with the Public Sector Company, its associated companies, subsi[diaries,holding company or directors. The test of independence princ:ipally emanates from the fact whether such person can be perceived as being able to exercise independent judgment revc~nably r m of conflict of into--=* 3ut being subservierit to any fc)

...

(c)

(d)

.. . rector shall not be constdered independc:nt if one following circumstances exist,-

f the

(i) he has been an employee of the Public Sector Company, any of its subsidiaries, or holding company during the last two years; (ii) he has, or has had 1within the last two years, a material business , ... Sector Company either directly or relationship with the r u o ~ l c indirectly, or director of a body that has such a relationship with the Public Sector Company; (ii) he has received re:muneratic)n in the two years preceding his as received additional remuneration appointment as adirector or h,

PART^^

THE GAZI?ITE OF PAKISTAN,EXTRA., MARCH 8. 2013

621

excluding retirement benefits from the Public Sector Company apart from director's fee or has participated in the Public Sector Company's share option or a performance-related pay scheme; (iv) he is a close relative (spouse, lineal ascendants and descendants and brothers and sisters)of the company's promoters, directors or major shareholders; he holds cross-directorships or has siinificant links with other directors through involvement in other companies or bodies; or he has served on the Board for more than two consecutive terms from the date of his first appointment provided that such person shall be deemed independent director after a lapse of one term;
Z

(v)

(vi)

(e)

on-Executive Director" means a director of a Public Sector ''N' Cormpany who is not entrusted with responsibilities of an administrative nanagerial nature; rdinance" means the L ~ ~ . . Ordinance, ~ ~ ~ ~ ~ 1984 z s (XLVII of 1984): ~blic Sector Company" means acompany, whether public or private, ich is directly or indirectly controlled, beneficially owned or not less than fifty percent of the voting securities or voting power of which are he1d by the Government or any instrumentality or agency of the Govemment or a statutory body, or in respect of which the Government or ;any instrumentality or agency of the Government or a statutory bociy, has otherwise power to elect, nominate or appoint majority of its din%tors, and includes a public sector association not for profit, licensed uncier section 42 of the Ordinance.

used but not defined in these rules (2) All other tenms and ex Shall have tne same mean~ng as are asslgnea to them in the Ordinance.

3. Composition of the Board.-(1) The Board shall consists of executive and non-executive directors, including independent directors and those representing minority interests with the requisite range of skills, competence, knowledge, experience and approach so that the Board as a group includes core competencies and diversity considered relevant in the context of the Public Sector Company's operations.
(2) The Board shall have forty percent of its total members as independent rswithin the first two years of this notification, which shall be raised to a

622

THE GAZEITE OF PAKISTAN, EXTRA.. MARCH 8, 2013

lpmll

majority of independent directors in the next two years, and the majority shall be maintained subsequently.The Public Sector Company shall disclose in the annual report Non-executive, Executive and Independent directors.

(3) No Independent D i t o r shall m c i p a t e in share options or any similar schemes of the Public Sector Company which entitle him to acquire any interest in the Public Sector Company.
(4) Any casual vacancy in the Board shall be filled up by the directors at the earliest hut not later than ninety days thereof.

(5) No person shall be elected or nominated as a director of more than five Public Sector Companies and listed companies simultaneously, except their S Iubsidiarie!
I The Public Sector Companyshall, where necessary, take necessary sure that the minority shareholders, as a class, are facilitated by proxy solicitationI,for which purpose the Public Sector Company shall,-

SIG,,b

L"

st,

(a)

annex with the notice issued under sub-section (4) of section 178 of the Ordinance, a statement by a candidate from amongst the minority shareholders who seek to contist election to the Board, and it may ' ' :a profile of the candidate;
L . . . . Drovloe information regarurr~g sllarsllulurlrg auuuru~r: and copies of ng minority gister of members to the candidates r the re) ~lders; and shareh,

o n a mquest by the candidates representing minority shareholdersand at the cost of the comoanv, . - annex to the notice issued under subsection (4) of section 178of the Ordinance an additional copy of proxy form duly filled in by such candidates.

, ) The appointing authorities, including the Government and other shareholde:rs, shall apply the fit and proper criteriagiven in theAnnexure in making ns of the persons for election as Board members unde~ the provisions of r~ominatio~ - ~ > : ~ ~ tne umlnance.
3~~

4. Role of the chairman and chief executive and separation of the two positions.-(1) The office of the chairman shall be separate, and his responsibilitiesdistinct, from those of the chief executive.

Pmn]
I

THE GAZElTE OF PAKISTAN,EXTRA., MARCH 8, 2013

(2)

623

The chairman of the Board shall,-

(a) ensure that the Board is properly working and all matters relevant to the governance of the Public Sector Company are placed on the agenda of Board meetings; (b) (c) conduct the Board meeting including fixing the agenda; and ensure that all the directors are enabled and encouraged to fully participate in the deliberations and decisionsof the Board.The chairman has a responsibility to lead the Board and ensure its effectivefunctioning and continuous development, he shall not be involved in day to day operations of the Public Sector Company.

I1

I
I

(3) The chief executive is responsible for the management of the Public Sector Company and for its procedures in financial and other matters, subject to the oversight and directions of the Board, in accordance with the Ordinance. His responsibilities include implementation of strategies and policies approved by the Board, making appropriate arrangements to ensure that funds and resources are properly safeguarded and are used economically, efficiently and effectively and in accordance with all statutory obligations.

(4) The Board shall elect its chairman from amongst the independent directors so as to achieve an appropriate balance of power, increasing accountability, and improving the Board's capacity for exercising independent judgment.
5. Responsibilities, powers and functions of the Boarul41) The Board shall exercise its powers and cany out its fiduciary duties with a sense of objective judgment and independence in the best interest of the company. This provision shall apply to all directors, including ex-oficiodirectors. Adirector, once appointed or elected, shall hold office for a period of three years, unless he resigns or is removed in accordance with the provisions of the Ordinance. The removal of a director shall only take place in the event of misconduct or if the director has not performed upto the standard, determined through a performance evaluation.

on: For the purposeof this clause, misconduct includes,(a) indulging in a competing pmfessional or personal conflict of interests' situation; using the funds, assets and resources of the Public Sector Company without due diligence and care;

(b)

6z4

THE GAZEITE OF PAKISTAN, EXTRA., MARCH 8. 2013

[PmTI

(c)

failing to heat the colleagues and the staff of thePublic Sector Company with respect, or using harassment in any form of physical or verbal abuse; making public statements without authorization by the Board: receiving gifts or other benefits from any sources external to the Public Sector Company offered to him in connection with his duties on the Board; or abusing or misusing his official position to gain undue advantage or assuminig financial or other obligations in private institutions or for which may cause embarrassment in the performanceof official r functions. duties 0 1
pL*"..U

(d) (e)

~oard shall evaluate the candidates based on the fit and proper . criteria and the guidelines specified by the Commission for appointment to the position of the chief executive, and recommend at least three individuals to the Government for appointment as chief executive of the.Public Sector Company. On receiving concurrence of the Government, the Board shall appoint the chief executive in accordance with the provisions of the Ordinance. The Board shall also be responsible for develop]nent and !ruccessiorI planning of the chief executive.
rL1 . .
I nr:
l oholl m. that obligations to all shareholders are fulfilled (3) The Borm,,,.,,.,.lsure and they are duly informed in a timely manner of all material events through shareholder meetings and other communications as are considered necessary.

Istandards,and c o porate valut:S (4) The Board shall ensure that profession2I are in place that promotes ~ntegrity for the Board, senior managemen~tand othc:r . . . . . employees in the form of a "Code of Conduct". The code ot conduct shall articulate reptable and unacceptable behaviors. The Board shall ensure that appropriate eps are taken to communicate throughout the company the code of conduct it sets Lugetherwith supporting policies and procedures, including posting the same on the company's website. The Board shall also ensure that adequate systems and controls are in place for the identification and redressal of grievances arising from unethical practices.

1,

shall establish a system of sound internal control, which ( 5 ) I ne ~ o a r d shall be effectively implemented at all levels within the Public Sector Company, to ensure compliancewith the fundamental principles of probity and propriety; objectivity,

PmU]

THE GAZElTE OF PAKISTAN, EXTRA., MARCH 8, 2013

625

integrity and honesty and relationship with the stakeholders,in the following manner. namely:(

the principle of probity and propriety entails that company's assets nd resources are not used for private advantage and due economy is xercised so as to reduce wastage. The principle shall be adhered to, especially with respect to the following, namely:(i) (ii) handling of public funds, assets, resourcks and confidential infomation by directors,executives and employees; and claiming of expenses; rity and honesty requires the following,

(b)

the principle of object namely:i)

the directors and executives of a Public Sector Company do not allow a conflict of interest to undermine their objectivity in any of their activities, both professional and private and that they do not use their position in the Public Sector Company to further their private gains in a social or business relationship outside the Public Sector Company. If a situation arise where an actual or potential conflict of interest exists, there shall be appropriate identification, disclosure and management cf such conflict of Interest' An a[ conflict o.f interest mlicy is developed and duly enforcea. bucn a policy shall clearly lay down circumstances or consimderations when a person may be deemed to have actual or potential conflict of interest, and the procedure for disclosing such iinterest:
9

i)

.. .

Explanation: For the purposes of this clause a person shall be deemed to have an interest in a matter if he has any stake, pecuniary or otherwise, in such matter which could reasonably be regarded as giving rise to a conflict between his duty to objectively perform his functions under these ~ l e so s that his ability to consider and decide any matter impartially or to give any advice without bias, may reasonably be regarded as impaired,
11)

wnere a director, executive or other employee has a conflict of interest in a particular matter, such person shall play no part in the relevant discussion, decision or action;

626

THE GAZETIE OF PAKISTAN, EXTRA., MARCH 8, 2013

P~lrrlI

(iv) a "register of interests" is maintained to record all relevant personal, financial and business interests, of directors and executives who have any decision making mle in thecompany,and the same shall be made publicly available. Such interests may include, for instance, any significant political activity, including office holding, elected positions, public appearances and candidature for election, undertaken in the last five years; (v) ' a declaration by the directors and executives that they shall not offer or accept any payment, bribe, favor or inducement which might influence, or appear to influem,their decisionsand actions; and (vi) the Board shall also develop and implement a policy on "anticorruption" to minimize actual or perceived corruption in the company; and (c) the principle of relationship with stakeholdersrequires the following, ..-".-I y:-

ensuring that the directors and s ~ a u u r euphold s the reputation of the company by treating the general public, institutional investorsand other stakeholders with courtesy, integrity and efficiency, and ensuring servicequality; ensuring equality of opportunity by establishing open and fair procedures for making appointments and for determining terms andconditions of service. The Board may nominate acommittee consisting of one of its members or senior Executives for investigating, where necessary on a confidential basis, any deviation fmm the company's code of conduct; and ensuring compliance with the law and the Public Sector Company's internal rules and procedures relating to public procurement, tender regulations, purchasing and technical standards, when dealing with suppliers of goods and services. The Board shall ensure that quality standards are followed with due diligence and that suppliers comply with the standards specified and are p zlid for supplies,or services within the time agreed.

P m q

THE GAZElTE OF PAKISTAN, EXTRA., MARCH 8. 2013

627

(6) The Board shall adopt a vision or mission statement and corporate
strategy for the Public Sector Company.

(7) The Board shall also formulate significant policies of the Public Sector Company, which may include the following, namely:(a)

the formal approval and adoption of the annual report of the Public
Sector Cofnpany, including the financial statements;

(b) the implementation of an effective communication policy with all the

stakeholders of the Public Sector Company; (c)
. .

the identitication and monitoring of the principal risks and oppormnities of.the Public Sector Comlz~ny and ensuring that appropriate systems are in place to manage these risks and opportunities, including, safeguarding the public reputation of the Public Sector Company;
procurement of goods and services so as to enhance transparency in procurement transactions; marketing of goods to be sold or services to be rendered bv the Public Sector Company; m i n a t i o n of tenns of credit and discount to customers; ite-off of bad or doubtful debts, advances and receivables;

(d)
(e)

(h) acquisition or disposal of fixed rwets and investments;

.- . . (i) borrowing of moneys up to a specitled limit, exceeding which the amounts shall be sanctioned or ratified by a general meeting of shareholders;

npomte social responsibilityinitiatives ihcluding, donations, charities,

nhibutions and other payments of a similar nature;

determination and delegation of financial powers to Executives and employees; mwtions orcontrac

ociated companies and related parties;

alth, safety and env~ronment; :velopment of whistle-blowing policy and protection mechanism;

1
I

628
(0)

THE GAZEITE OF PAKISTAN, EXTRA., MARCH 8, 2013

[PARTII

capital expenditure planning and control; protection of public interests; and human resource policy including succession planning.

(p) (q)
I

(8) Any service delivered or goods sold by a Public Sector Company as a public service obligation where decisions are taken in fulfilling social objectives of the Government but are not in its commercial interests, outlay of such action shall be quantified and request for appropriate compensation there-for shall be submitted to the Government for consideration.
(9) A complete record of particulars of the above-mentioned policies along with the dates on which they were approved or amended by the Board shall be maintained
shall define the level of materiality, keeping in view the (lL, specific context of the Public Sector Company and the recommendations of any committee of the Board that may be set up for the purpose.

Meetings of the Board.-(I) The Board shall meet at least once, er of a year,to ensure that it discharges its duties and obligations to snawnoluers and other stakeholders efficiently and effectively. In case of nonc:reported to the cc rmmission with reasons of noncompliance, the sanle shall b compliance, within fourteen clays of tht:end of tlle quarter in which the meeting should have been he Id.
e

(2) Written notices of meetings, including the agenda,duly approved by the Chairman, shall be circulated not less than seven days before the meetings, except in the case of emergency meetings, where the notice period may be reduced or waived by the Board.
(3) The chairman of the Board shall ensure that minutes of meetings of the Board are appropriately recorded by approving them under his signature. The minutes of meetings shall be circulated after approval of the chairman. to directors and officers entitled to attend Board meetings, not later than fourteen days thereof, unless a shorter period is provided in the articles of association of the Public Sector Company.
In the event that a director of a Public Sector Company is of the view ssenting note has not been satisfactorily recorded in the minutrs of a t meetlng of the Board, he may refer the matter to the company secretary, or the chairman of the Board. The director may require the note to be appended to the minutes, failing which he may file an objection with the Commission.
)

PARTIII

THE GAETI'E OF PAKISTAN. EXTRA.. MARCH 8. 2013

629

(5) A Board meetiig held and attended through video-conferencing shall be a valid meeting, as long as its proceedings are properly recorded and the requirements specified by the Commission for public companies for holding Board meetings through video-conferencing are met.

7. Key information to be placed for decision by the Board.-41) The Board shall establish appropriate arrangements to ensure it has access to all relevant information, advice and resources necessary to enable it to cany out its mleeffectively. Significantissues shall be placed before the Board for its information and consideration, in order to formalize and strengthen the corporate decision making proce
~r the purpose of include the following,namely:(a)
SI

). significant issues shall. inter-alia,

annual business plans, cash flow projections, forecasts and long term plans; budgets including capital, manpower and expenditure budgets, along with nalyses; ~ternal audrr r c p r LS, including cases of fraud or major irregularities; ~anagement letters issued by the external auditors;

(d)

details of joint ventures or collaboration agreements or agreements with distributors, agents, etc; -omulgationor amendment of a law, rule or regulation or, enforcement F an accounting standard or such other matters as may affect the ublic Sector Company;

(f)

status and implications of any lawsuit orjudicial proceedings of material nature, filed by or against the Public Sector Company; any show cause, demand or prosecution notice received from any revenue or regulatory authority, which may be material; material payments of government dues, including income tax, excise and customs duties, and other statutoy dues including penal charges ttiereon;

(g)

(h)

(i)

in~est,,.,..,~ "nd loans to or from associated concerns ir~ter-corporate I which the business group, of which the Public Sector Company is a art, has significant interest;

...

630

THE GAZFlTE OF PAKISTAN, EXTRA, MARCH 8. 2013

[PARTU

(j) policies related to the award of conhkts and purchase and sale of raw materials, finished goods, machinery etc;
(k) default in payment of principal or interest, including penalties on late

payments and other dues, to a creditor, bank or financial institution or default in payment of public deposit; (1) failure to recover material amounts of loans, advances, and deposits made by the Public SectorCompan$ including tradedebts and intercorporate finances; any significant accidents, dangerous occurrences and instances of pollution and environmental problems involving the Public Sector Company; significant public or product liability claims made or likelyto be made against the Public Sector Company, including any adverse judgment or order made on the conduct of the Public Sector Company or of any othercompany that may bearnegatively on thePublicSectorCompany; disputes with labor and their proposed solutions, any agreement with '+or union or collective bargaining agent and any charter of ds on the Public Sec:tor Company;

(m)

. .

.,,
1

,A nn..:+.r ,..,nt for goodwill, bran,

,.

,r intellectual proper?, ,
n

annual, quarterly, monthly or other periodical accounts as are required to be approved by the Board for circulation amongst its members; reports on governance, risk and compliance issues; rotection mechanism;

(r)

(t)
I

rcprulr url ~

u ~ p t aSocial t e Responsibility (CSR) activities; and

related party transactions.

evaluation.-41) The performance evaluation of the 8. Perfot~nanee nembers of the Board including the chairman and the chief executive shall be ~ndertaken for which the Board shall establish a process, based on specified criteria, m d the chairman of the Board shall take ownership of such an evaluation. The :ommittees shall also carry out their evaluation on an annual basis.

Pmnl

THE GAZElTE OF PAKISTAN, EXTRA., MARCH 8, 2013

63I

(2) The Board shall monitor and assess the performance of senior management on a periodic basis, at least once a year, and hold them accountable for accomplishingobjectives, goals and key performance indicators set for this purpose.
9. Related party trumdoaa--(l)The details of all related party transactions shall be placed before the. audit committeeof the Public Sector Company and upon recommendationsof the audit committee, the same shall be placed before the Board for review and approval.

~. .

(2) The related party transactions which are not executed at ann's length price shall also be placed separately at each Board meeting along with necessary justification for consideration and approval of the Board on recommendation of the audit cwmmitteeo f the Public Sector Company. le Board shall approve the pricing methods for related-party (3) transactions that were made on the terms equivalent to those that prevail in arm's length transaction only if such terms can be substantiated. Every Public Sector Company shall maintain a parIy wise record of ctions, in each financial year, entered into with related parties in that year along with all such documents and explanations. The record of related party transaction shall include the following particulars in respect of each transaction, namely:(4)

(a) name of related party;

(b)

nature of relationship with related party; nature of transaction:

(c)

(d) amount of transaction: and (e) terms and conditions of transaction, including the amount of consideration received or given.

(5) The Public Sector Company may seek a general mandate from its members for recurrent related party transactions of revenue or hading nature or those necessary for its day-to-day operations such as the purchase and sale of suppliesand materials, but not in respect of the purchaseor sale of assets, undertakings or businesses. A general mandate is subject to annual renewal.

632

THE GAZEITE OF PAKISTAN, EXTRA., MARCH 8 , 2013

p~lrrn

10. Quarterly and Monthly Financial Statements and Annual Report.41) Every Public Sector Company shall, within one month of the close of first. second and third quarter of its year of account, prepare a profit and loss account for, and balance-shkt as at the end of, that quarter, whether audited or otherwise, for the Board's approval. Annual report including annual financial statements shall be placed on the Public Sector Company's website.

(2) Every Public Sector Company shall also prepare monthly accounts, for circulation amongst the Board members.
1. Board orientation and learning.41) Orientation courses shall be held by a Public Sector Company, to enable directors to better comprehend the specific context in which it operates, including its operations and environment, awitreness of Public Sector Company's values and standards of probity and accountability as well as their duties as directors. ors are w~ (2) In order to ensure that rsant with the . . under an corporate laws and practices, they are encouraged to have cenlr~cation by any institution, local or foreign. n offered :or education propu

(3) In order to acquaint the Board members with the wider scope of. responsibilitiesconcerning the use of public resources, to act in good faith and in the best interests of the Public Sector Company, at least one orientation course shall be arranged annually for the directors and the following information in writing, interalia, shall be provided, namely:(a) Public Sector Compahy's aims and objectives; control environment and control activities; key policies and procedures; risk management and internal control framework: background of key personnel, including theirjob descriptions; :ation of financial and administrative powers;
EI
DO&

(b)
(c) (d) (e)

and staff structure;and :eting, planning and Ice evalua ms.

PARTHI

THE GAZETTE OF PAKISTAN, EXTRA., MARCH 8, 2013

633

12. Formation of Board committees.-(1) The Board shall set up the following committees to support it in performing its functions efficiently, and for seeking assistance in the decision making process, namely:(a) audit committee, for an efficient and effective internal and external financial reporting mechanism; risk management committee, in case of Public Sector Companies either in the financial sector or those having assets of five billion rupees or more, to effectively review the risk function; human resources committee, to deal with all employee related matters including recruitment, training, remuneration, performance evaluation, succession planning, and measures for effective utilization of the ,loyees of 'the Puhlil 'ompany; procurement committee, to ensure transparency in procurement tran~sactions and in dealing with the suppliers; and
nnn ..-..?ination committee, to identify and recommend the candidates for the Board for the consideration of shareholders after examining their skills and characteristics that are needed in such candidates.

(b)

1
I,
-.

(c)

(d)
l e) ,

(2) The Board committees shall be chaired by non-executive directors and the majority of their members shall be independent. However, the independent directors in the committees shall not be less than their proportionate strength during the first four years of this notification. The existence of such committees shall not absolve the Board from its collective responsibility for all matters. Such committees shall have written terns of reference that define their duties, authority and composition, and shall report to the full Board.The minutes of their meetings shall be circulated to all Board members.

(3) The Board shall concern itself with policy fornulation and oversight and not the approval of individual transactions except which are of an extraordinary nature or involve materially large amount.

13. Chief Financial ORcer, company Secretary and Chief Internal Auditor appointment and removal.-41) The Board shall appoint a chief findncial officer, a company secretary and a chief internal auditor.

appointment, remuneration and tams and conditions of employment of the chiet t~nancial officer, the company secretary and the chief internal auditor of Public Sector Company shall be determined with the approval of the Board.

(3) The chief financialf l ~ c e rthe , company wxewy, or the chief internal auditor of Public Sector Company shall not be removed except with the approval of the Board.
14. R & and qualification d ChM FLnand.l Omar and Company Secntpry.-(l) The chief financial ofticer shall be responsible for ensuring that appropriate advice is given t o the Board on all financial maners, for keeping proper financial records and accounts, and for maintaining an effective system of internal financial control.

<

No person shall be appointed as the chief financial d ~ c eof r a~ u b l i npany unless he is,)

.~ccountants with at (a:) a member of a recognized body of professio~~.~l least five years relevant experience, in case of Public Sector Companies having total assets of five billion rupees or more;or
(b) apersonholding a master&gree. in firram from aunivasity rsognized by the Higher Education Commission with at least ten yesn relevant ewe. in cis e of othc:r Public S&tor Cotnpanies.
uw-r

'

. h ,rll I . . a .

procedures are followed, and that all applicable laws, rules and ncgulations and other relevant statementsof best practice are complied with. Where the annpany secRlary is not separately appointed, the mle of company secretary may be combined with :r or any other member of senior management. chief finan person shall be appointed as the company secretary of a Public Sector Company unless he is a , -

.)

NO

la)
)

member of a &ognized bodv of umfessiond accountants: or memb

. ,

I holding a mastadegree in business administration rce ,.tg a law graduate fmm a university recognized by the Higher Education Commission with at least five years relevant experience.

(5) No person shall be appointed to the positions of the chief financial ofticer and company secretary unless he is fit and proper for the position.

PARTII]

THE GAZETTE OF PAKISTAN, EXTRA., MARCH 8, 2013

635

15. Requirement to attend Board ~ e e t i n ~ s . - - ( l ) ~ hchief % financial oflcer and the company secretary of a Public ~e'ctor Company shall attend all meetings of the Board:
Provided that unless elected as a director, the chief financial officer and the company secretary shall not be deemed to be a director or entitled to cast a vote at meetings of the Board for the purposes of these rules: Provided further that the chief financial officer and the company secretary shall not attend such part of a meeting of the Board, which involves consideration of an agenda item relating to them or that relating to thechief executive or any director. (2) In pursuance of sub-rule (1). the Board shall ensure that the chief financial officer and the company secretary attend Board meetings, wherever required. Financial Reporting Framework.-Every Public Sector Company s t International Financial Reporting Standards, as are notified by the Cu~ranrss~ under ~ n clause (i) of sub-section (3) of section 234 of the Ordinance. 17. Directors' report to the Shareholders.-41) The Board shall submit an annual report to the shareholders.

.-

(2) The Board shall make the following statements and provide the followinrr information in their report to the shareholders, prepared under section 236 o,f the 0r;fi nance, namely:,
\

the Board has complied with the relevant principles of corporate governance, and has identified the rules that have not been complied with, the period in which such non-compliance continued, and reasons for such non-comoliance:

(b) the finarr~rarouirclrlcuLs, prepared by the management of the Public Sector Company, present fairly its state of affairs, the result of its operati ons, cash changes in equity;
Ic)

nrnner books of account of the Public Sector Company have been

. .

ined:
(d)

appropriate accounting policies have been consistently applied in preparation of financial statements and accounting estimates are based on reasonable and prudent judgment;

636 -

THE GAZFITE OF PAKISTAN, EXTRA., MARCH 8. 2013

PAR TI^

they recognizetheirresponsibility to establishand maintain sound system nal control, which is regularly reviewed and monitored; and
t

the appointment of chairman and other members of Board and the terms of their appoinfment alongwith the remuneration policy adopted are in the best in the Public Sector Company as well as in line with the bes~

(3) The disclosure of an Executive's remuneration is an important aspect for a Public Sector Company. The annual report of a Public Sector Company shall contain a statement on the remuneration policy and details of the remuneration of members of the Board. Separate figures need to be shown for salary, fees, other benefits and other performance-related elements.
I The d irectors' ~ report of a h b l i c Sector Company shall also include (41 the followi~ ng, where applicable, namely:-

where the Public Sector Company is reliant on a subsidy or other financial support from the Government, a detailed disclosure of the
fi"t.

(b)

:ant deviations from last year in operating results of the F'ublic sector Company shall be highlighted and reasons thereof shall be explained,

(c) key operating and financial data of last six years shall be summarized; (d) key performance indicators of the Public Sector Company relating to its social objectives and outcomes which significantly reflect the work and imlpact of Public Sector Company and a comparison of actual results with the budgeted figures. Such indicators shall focus on as to I . , . . . ... .ell the Public Sector Company has responded to accountability Jnuw requirements, impmved s evice ~ deliv, ery, reduct: d costs ar~dadherence of envimmnental and corporate social reslmnsibilities; to the p~rinciples where any statutory payment on account of taxes, duties, levies and charges is overdue or outstanding, the amount together with a brief description and reasons for the same shall be disclosed; signific:ant plans and decisions, such as corporaterestructuring, business expansion and discontinuance of operations, shall be outlined along with future pmspects, risks and uncertainties surrounding the Public Sector Company;

(e)

PARFII]

THE GAZETTE OF PAKISTAN, EXTRA., MARCH 8, 2013 (g)

637

a statement as to the value of investments of provident, gratuity and pension funds, based on their respective audited accounts, shall be included, the number of Board meetings held during the year and attendance by each director shall be disclosed, and the pattern of shareholding shall be reported to disclose lhe aggregate number of shares (alongwith details, stated below) held by,(i)
(ii)

(h)

(i)
I

Government; associated companies, undertakings and related parties (name wise details);

(iii) mutual funds;

)

directors, Chief Executive, and their spouse and minor children (name wise details); Executives; Public Sector Companies ind corporations; banks, development finance institutions, non-banking finance companies, insurance companies, takaful companies, and modarabas; and shareholders holding five percent or more voting rights in the Public Sector Company (name wise details).

)
IVI)

'-.:':)

L " .

", isclosure of Interests by Directors and Officers.-41) Every

direct1wofaPulblic Sector Company, if he or his relative, is in any way, directly or indirectly, concc:med or interested in any contract or arrangement entered into, or to I . " .-.-A by or on behalf of the Public Sector Company shall disclose the "G Clll.cLcU nature: of his concern or interest at a meeting of the directors.
--4

:-.A ,. * I . "

~ 1 ~ 2 h Executive ief andother Executives) oblic Sectc~rCompany, if he or his relati\re, is in any way, directly or indirectly, of a PI concemed or interested in any pro1msed con1mct or arrangement by the company l r r h n ---, shall ~4:--1--L ~ L , U w~the G Company ,,u.,,munication to the company secretary, the nature and extent of his interest in the transaction. Such officer and the company shall ensure that such information is properly placed and considered by any forum
I"\

W J

I B ULMGS ~ ULIILSI V C I L I Y U I I I ~

-8

PC

,:.-I

..A:.-.-

th-4

638

THE GAZElTE OF PAKISTAN, EXTRA., MARCH 8, 2013

@ARTII

where the matter relating to such proposed contract or arrangement is to be discussed and approved.

(3) If a director or oficer has an existing interest, before joining the Board, he shall disclose such interest to the Board, which shall take such facts into consideration for any current and future decision making.
19. Directors' Remuneration.-(1)There shall be a formal and hansparent procedure for fixing the remuneration packages of individual directors. No director shall be involved in deciding his own remuneration.

(2) Directors' remuneration packages shall encourage value creation within the company, and shall align their interests with those of the company. These shall be subject to prior approval of shareholders or Board as required by company's Articles of Association. Levels of remuneration shall be sufficient to attract and retain the directors needed to run the company successfully.
(3) Subject to the provisions of the company's Articles ofAssociation, the shareholders or Board shall determine the scale of remuneration for non-executive directors. However, it shall not be at a level that could be perceived to compromise their independence.
(4) The Public Sector Company's annual report shall contain criteria and details of the remuneration of each d i i t o r , including salary, benefits and performance linked incentives.

20. Responsibility f o r financial reporting a n d c o r p o r a t e compliance.-No Public Sector Company shall circulate its financial statements unless the chief executive and the chief financial officer, present the financial statements,duly certified under their respective signatures, for consideration and approval of the audit committee and the Board.The Board shall, after consideration and approva e the signing of financial statements for issuance and circulation.
t The Board shall establish an audit committee, 21. ~ u mCommittee.-41) whose members shall be financially literate and majority of them, including its chairman, shall be Independent Non Executive Directors, subject to the provisions of sub-rule (2) of rule 12. The names of members of the audit committee shall be disclosed in each annual report of the Public Sector Company. .

(2) The cbairman of the Board as well as the chief executive of the Public :ctor Comtpany shal1not be a member of the audit committee.

STAN, E X '

RCH 8. 2013

639

omcer, the cnler mtemal auditor, and arepresentative (3) 'l'he chlet fmnanc~al of the external auditors shall attend all meetings of the audit committee at which issues relating to accounts and audit are discussed: 'provided that at least once year, the au&t committee shall meet the external auditors without the presence of the chief financial offtcer, the chief internal auditor and other executives being present, to ensure independent communication between ors and the audit co:mmittee: the exte Provlded further that at least once a year, the audit committee shall meet internal auditor and other members of the internal audit function without the nancial of he external auditors being present.
,a,

chief

~ n rroara e shall determine the terms of reference of the audit commit:tee. The terms of reference shall be in writing, specifying the mandate of the audit committee.The audit committee shall have full and explicit authority to investigate , . , -4tter within its terms of reference and shall be provided with adequate resources and acc,ess to all Irelevant ir
(4)

m .

""..I..,

audit committee shall, mter-alra,t x . responsible forrecommending to the Board the appointment of external auditors by the Public Sector Company's shareholders and shall consider any questions of resignation or removal of external auditors, audit fees and provision by external auditors of any service to the Public Sector 1Company in addition to audit of its financial statements. In the absence of strong ,grounds to proceed otherwise, the Board shall act in accordance with the , . . . m n nendations of the audit committee in all these matters. However, the Board shall nc)t be deenled to absolve itself of its overall responsibility f or the functions delegated to the 2iudit comlnittee.
( 5) ,

Thr -. . :

. ,, ..

(6) The terms of reference of the audit committee may also include the following, namel)
ermlnation or approoriate measures to sareeuara me Public Sector mpany's assets; iew of financial rest (c) ~dannual financial s of the review of quarterly, ha1 h ~ l Sector Company, prior to their approval by the Board, focusing ,lit

rl I ,,

major judgment areas: significant adjushnents resu lting from the audit;

(ii)

640

THE GAZEITE OF PAKISTAN, EXTRA., MARCH 8, 2013

[PARTII

(iii) (iv) (v)

the going-concern assumption; any changes in accounting policies and practices; and compliance with applicable accounting standards.

Explanation.-The appropriateness of the use ofthe going concern assumption in the preparation of the financial statements is generally not in question when auditing Public Sector Company having funding arrangements backed by the Government. However, where such arrangements do not exist, or where Government funding of the Public Sector Company may be withdrawn and the existence of the Public Sector Company may be at risk, International Standards on Auditing providi:useful guidance. This issue is increasingly important forpublic Sector Companies which tlave been privatized; (d) factlltating the external audlt and discussion with external audltOS of major observations arising from interim and final audits and any matter that the auditors may wish to highlight (in the absence of management, where necessaw): revieu
, , L a , , a g c , L , c , , L>

..

...

(elI

agement
,C>,,"#,%C

.,

ued by external auditors and

L,,C,C,",

~g coordination between the internal and external auditors of

, , , , ,"blic Sector Company;

(g) review of the scope and extent of internal audlt and ensuring that the internal audit function has adequate resources and is appropriately placed within the Public Sector Company; considetation of major findings of internal investigations and management's response thereto; ascertaining that the internal control system including financial and operational controls, accounting system and reporting structure are adequate and effective; review of the Public Sector Company's statement on internal control systems prior to endorsement by the Board; recommending or approving the hiring or removal of the chief internal auditor;

(h)

(i)

fj)

(k)

PART^

THE GAZETll? OF PAKISTAN, EXTRA., MARCH 8, 2013

64 1

0) instituting special projects, value for money studies or other

investigations on any matter specified by the Board, in consultation with the chief executive and to consider remittance of any matter to the external auditors or to any other external body; (m) (n) (0) (p) determination of cam1 vith relevant statutory requirements;

monitoring compliance with the best practices of corporate governance and identification of significant violations thereof; overseeing whistle-blowing policy and protection mechanism; and consideration of any other issue or matter as may be assigned by the
Rr

1
I

".

st ,sponsiblefor managing the relationship te audit c ommittee ~ or r u o ~ sector ~ c Lampany with the external auditors. In managing the Public Sector Company's relationship with the external auditors on behalf of the Board, the audit committee's responsibilities include,-

, .

(a)

suggesting the appointment of the external auditor to the Board, the audit fee, and any questions of resignation or dismissal;' * consultancy work proposed to be undertaken by theexternal auditors, and reviewing the remuneration for this work;
9 .

(b) considering the objectives and scope of any non-financial audit or

(c)

discussing with the external auditors before the audit commences the scope of the audit and tne extent of reliance on internal audit and other -view agenri-. re? di!;cussing wirn me exrernal auditors any significant issues from the view of the financia'lstatements by the management, and any other >rkundertaken or oq rerseen b jr the audit committee; reviewing and considenng tne external auditom' communication with management and management's response thereto; and viewing p ditors.
I accepted

(d)

(e)

recommendations from the external

(8) Thr; endations atio ions of the audit committee for appointment of retiring rs or otherwise, as mentioned in sub-rule (7) above, shall be included in the

642

THE GAZEITE OF PAKISTAN, EXTRA., MARCH 8, 2013

directors' report. In case of a recommendation for change of external auditors before the lapse of three consecutive financial years, the reasons for the same shall be included in the directors' report.
(9) The audit committee shall appoint a secretary of the Committee, who shall circulate minutes of its meetings to the all members, directors and the chief financial officer, within fourteen days of the meeting.

22. InternalAuditc(1) T h e r e shall be an internal audit function in every Public Sector Company. The chief internal auditor, who is the head of the internal audit function in the Public Sector Company, shall be accountable to the audit committee and have unrestricted access to the audit committee. (2) NO person shall be appointed to the position of the chief internal auditor unless he is considered and approved as "fit and proper" for the position by the Audit Committee. No person shall be appointed as the Chief Internal Auditor of a Public Sector Company unless he ha9 five years of relevant audit experience and is a,I)

member of a recognized body of professional accountants; or ied internal auditor; or ~ ~ t r r ~fraud i e d examiner; or

(1
(LJ

1) certified internal control auditor; or

:) r persoln holding a master degree in firlance fromI a university recognized

n : by the:Higher Education CommissicB Provided that individuals sewing as chief internal auciitor of the Public Sector Company for the laqt five years at the time of conling into force of thc:se rules shall he exempted from the above qualification require.rnP"t

(3) Every Public Sector Company shall ensure that internal audit ieports arc provided for the review of external auditors. The external auditors shall discuss any major findings in relation to the reports with the audit committee, which shall report matters of significance to the Board.
(4) The internal audit function shall have an audit charter, duly approved by the audit committee and shall work, as far as practicable, in accordance with the standards for the professional practice of internal auditors issued by the Institute of Internal Auditors Inc., (the global professional organization of internal audit profession).

THE GAZE'ITE OF PAKISTAN, EXTRA.. MARCH 8, 2013

643

23. External Auditors.-(1 ) Every Public Sector Company shall ensure that its annual accounts are audited by external auditors, as envisaged under section 252 of the Ordinance. When carrying out audit of a Public Sector Company, the external auditors shall take into account the specific requirements of any other relevant regulations, ordinances or ministerial directives which affect the audit mandate and any special auditing requirements. (2) In assessing materiality, the external auditor must, in addition to exercising professional judgment, consider any legislation or regulation which'may impact that assessment. :ndently report to the shareholders in (3) The external ~ U U I L U ISI S accordance with statutory and professional requirements. Thev shall also report to t the matters of audit intterest. as 1, aid down in the the Bo;ard and a1~ d i committee tional Stai Interna ~dards on Auditing. No Public Sector Company shall appoint as external auditors afirm of aud~tors which firm or a partner of which firm is non-compliant with the International Federaltion of Accountants' (IFAC) Guidelines on Code of Ethics, as applicable in Pakistn
(4)

(5) The external auditors shall observe applicable guidelines issued by the ,tionat Federation of Accountants with regard to restriction of non-audit Dc.v.c~s. The audit committee shall also ensure that the external auditors do not perforr n manage ment functions or ITlake management decisions, nesponsibility for which :remains ulith the Bc)ard and nlanagemelnt of the Public Secto r Compamy.

(6) Every Public Sector Company in the financial sector shall change its externi11 auditors every fiveyears. Financial sector, for this purpose, means banks, non-ha nking finance companies, mutual funds, modarabas, takaful companies and insurarIce companies. Every Public Sector Company other than those in the financial sector shall, at a minimum, rotate the engagement partner after every fiveyears.

(7) No Public SectorCompany shall appoint a person as its chief executive,

chief f inancial officer, chief internal auditor or director who was a partner of the G . . - -4 "fits external auditors (or an employee involved in the audit of the Public preceding such appointment. Sector Company) at any time during the two
(8) Every Public Sector Company shall require external auditors to furnish a management letter to its Board not later than thirty days from the date of audit report.

614

THE G

A OF PAKISTAN. ~ WCIRA.. MARCH 8. 2013

PART^

24. Compliance with the ruies.-(l) EveryPublic SectorCompany shall publish and circulate a statement along with its annual report to set out the status of its compliance with these rules, and shall also file with the Commission and the registrar concerned such statement alongwith its annual report.

Compliancc:with the rules is reviewed and certified by external auditors, where such

cornprlance can be objectively verified, before publication by the Public Sector Company.

.:-~..~

(2)

Every Public Sector Company shall ensure that the statement of

(3) Where the Commission is satisfied that it is not practicable to comply with any of these rules, the Commission may, for reasons to be recorded, relax the same subject to such conditions as it may deem fit to impose.
fai cs Penalty for eontraventiaR of the nules.-Whoever to comply vvith, or conhavenes any pmvisi~ on of these!rules,or knowingly and w~~~rully authorises or permits such failure, refusal or contravention shall, in addition to any other liability under the Ordi~ lance, be punishable with fine and, in the case of continuing failure, to a further fine, as pnovided in Isub-section (2) of section 506of the Ordinance.

ISreRule X71
ERIA FOR DETEI

A ! l N m u u

4ND PROPER PEI

I
I

I
I

(1) For the purpose of determining as to whether a person proposed to be appointed i3 s direct01 r is a 'fit and proper person', the Commission shall take into n.iA-r account an;cr m ,,..,.,,.,ation as it deems fit, including but not limited to the following Criteria, nar
Th, - ..e person proposed for the said position.

;I
is at least graduate; is a reputed businessman or a recognised professional with &levant sectoral experience; has finzmcial integrity; has no convictions or civil liabilities; is know competerIce:

PurW

THE GAZETTE OF PAKISTAN, EXTRA., MARCH

(fl has good reputation and character;

8. 2013

645

(g)

has the haits of efficiency and honesty; in the Ordinance;

(h) does not suffer from any disqualification to act as a dimtor stipulated ..

(i)

has n o t been subject to an wder passedby thecommission cancelling the certificate of registration granted to the person individually or collectivelywithothers on the ground of its indulging in insider trading, fraudulent and unfair trade practices or market manipulation, illegal banking. forex ordeposit taking business;

u not been subject to an order passed by the Commission or any her regulatory authority, withdrawingor refusing to grant any license approval to him which has a bearing on the capital market;

(k) is not a stock broker or agent of a broker, and

(1) does not suffer from a conflict of interest; this includes political office holders in a legislative mle.

for the

director shall cease to be considered as a Wit and proper person" if he incurs any of the following disqualifications, namely:r is convicted by a court for any offence involving moral turpitude.

onomic offence, disregardof securitiesand company laws or fraud;

D

an order for winding up has been passed against a company of which

he was the oficer as defined under section 305 of the Ordinance;

"

'-7 &his

close relatives have been engaged in a business which is of e same nature as and directly competes with the business carried on the Public Sector Company of which he is the director.
I

BUSHRA ASLAM.
Secretary to the Commission

PRINTED BY 5HE MANAGER. PRINTING CORPORATlON OF PAKISTAN PRESS. ISLAMABAD. IIlRLlSHW BY THE DEPVlY CUNIROUER. STATIONERY AND FORMS. UN1VER.m ROAR KARACHI.

SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN Islamabad, the 16th July, 2012 NOTIFICATION

S.R.O 877(I)/2012 In exercise of the powers conferred by sub-Section (1) of Section 167 of the Insurance Ordinance, 2000 (XXXIX of 2000) read with clause (lxiv) of section 2 and the second proviso to section 120 thereof and S.R.O 708(1)/2009 dated 27 July 2009 having been previously published in the official Gazette for eliciting public comments the Securities and Exchange Commission of Pakistan, with the approval of the Board, is pleased to make the Takaful Rules, 2012. CHAPTER 1 PRELIMINARY

1. Short title and commencement.- (1) These Rules shall be called the Takaful Rules, 2012. (2) These Rules shall come into force at once. Existing Takaful Operators shall comply with the requirements of these Rules within period of six months from the notification in the Official Gazette. 2. Definitions.- (1) In these Rules, unless there is anything repugnant in the subject or context,(i) Commission means the Securities and Exchange Commission of Pakistan established under section 3 of the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997); (ii) Contribution means the amount payable by a Participant to an Operator under a Takaful Contract; (iii) Conventional Insurance means life or non-life insurance under the Ordinance, including reinsurance, which is not Takaful as defined in clause (lxiv) of section 2 of the Ordinance and Re-Takaful; (iv) Family Takaful means Takaful for the benefit of individuals, groups of individuals and their families, as provided under sub-section (2) of section 3 of the Ordinance; (v) General Takaful means Takaful other than Family Takaful; 1

(vi) Mudaraba Based Contract means a Takaful contract based on the principle of Mudaraba; (vii) Ordinance means the Insurance Ordinance, 2000 (XXXIX of 2000);

(viii) Operator means a Takaful Operator or a Window Takaful Operator, authorized under these Rules; (ix) Operator Fund means a fund set up by a General Takaful Operator which shall undertake all transactions which the Operator undertakes other than those which pertain to Participant Takaful Funds set up by the Operator; (x) Operator sub-fund means a sub-fund of a statutory fund set up by a Family Takaful Operator in which all takaful operator fees shall be credited and from which all expenses relating to the Statutory Fund which are not charged to any Participant Takaful Fund or Participant Investment Fund shall be debited; (xi) Participant means a person who participates in a Takaful scheme and to whom a Takaful Contract is issued; (xii) Participant Investment Fund means a separate group of assets forming a sub-fund of a statutory fund of a Family Takaful Operator which is to be used as a basis for determination of the benefits payable under a Family Takaful contract; (xiii) Participant Takaful Fund means,(a) in the case of a Family Takaful Operator a sub-fund of a statutory fund into which the participants risk related contributions are paid and from which risk related benefits are paid out; and in the case of a General Takaful Operator a separate fund set up into which the participants risk related contributions are paid and from which risk related benefits are paid out;

(b)

(xiv) Participants Membership Documents means the documents detailing the benefits and obligations of a Participant under a Takaful Contract; (xv) Principal Officer means a person, by whatever designation called, appointed by a Takaful Operator and charged with the responsibility of managing the affairs of the Takaful Operator; (xvi) Registered Insurer means an insurer registered with the Commission under section 7 of the Ordinance to transact life or non-life insurance business; 2

(xvii) Re-Takaful means an arrangement for re-Takaful of liabilities in respect of risks accepted by the Operator in the course of carrying on Takaful business and includes ceding risks from Participant Takaful Funds to Re-Takaful Operator(s); (xviii) Shariah Advisor means a person appointed by an Operator under rule 26; (xix) Shariah Advisory Board means the Shariah Advisory Board constituted by the Commission; (xx) Takaful Benefit includes any benefit, whether pecuniary or otherwise, which is secured by a Takaful Contract; (xxi) Takaful Contract means any contract of Family Takaful or General Takaful;

(xxii) Takaful Operator means a Registered Insurer who is authorized by the Commission to carry on Takaful business and not Conventional Insurance business; (xxiii) Wakala based contract means a Takaful contract based on the principle of Wakala (agency); and (xxiv) Window Takaful Operator means a Registered Insurer authorized under these Rules to carry on Takaful business as window operations in addition to Conventional Insurance business. (2) Words and expressions used but not defined in these Rules shall, unless there is anything repugnant in the subject or context, have the same meaning as are assigned to them in the Ordinance. CHAPTER II AUTHORIZATION AND CONDITIONS TO TRANSACT TAKAFUL BUSINESS

3. Prohibition to engage in Takaful Business without authorization.- (1) No person shall begin or continue to carry on Takaful business in Pakistan or use the word Takaful or undertake any activity in the nature of Takaful business, unless such person has obtained from the Commission a certificate of authorization to carry on Takaful business as Takaful Operator or as Window Takaful Operator, as the case may be, under these Rules. Provided that the Takaful Operators registered under the Ordinance prior to the issuance of these Rules shall continue to carry on Takaful business and shall

deemed to be authorized under these Rules. (2) The issue of investment linked policies by life insurers transacting Conventional Insurance business where the underlying assets to which the value of such policies are linked are Shariah compliant shall not be deemed to constitute carrying on Takaful business. 4. Persons eligible to transact Takaful Business.- (1) No person other than a Registered Insurer and authorized in this behalf under these Rules shall be eligible to transact Takaful business. (2) A Registered Insurer registered to transact life insurance business shall be eligible to transact Family Takaful and a Registered Insurer registered to transact non life insurance business shall be eligible to transact General Takaful. (3) All provisions of the Ordinance and insurance rules pertaining to life insurance business shall be deemed to apply to Family Takaful business and all provisions of the Ordinance and insurance rules pertaining to non-life insurance business shall be deemed to apply to General Takaful business. 5. Application for Authorization as Takaful Operator.- (1) An application for authorization as a Takaful Operator shall be made to the Commission in such form along with such documents and information as may be specified from time to time. (2) The Commission, while considering the application for authorization, may require the applicant to furnish such further information or clarification as it deems necessary. (3) Any subsequent change in the information provided to the Commission at the time of filing of application under sub-rule (1) shall be intimated to the Commission within fourteen days of the occurrence of change. (4) The applicant shall, if so required, appear before the Commission for a representation through an officer duly authorized for this purpose in writing by the board of directors of the applicant. 6. Application for Authorization as Window Takaful Operator.- (1) An application for authorization as a Window Takaful Operator shall be made to the Commission in such form along with such documents and information as may be specified from time to time. (2) The Commission, while considering the application for authorization, may require the applicant to furnish such further information or clarification as it deems necessary. 4

(3) Any subsequent change in the information provided to the Commission at the time of filing of application under sub-rule (1) shall be intimated to the Commission within fourteen days of the occurrence of change. (4) The applicant shall, if so required, appear before the Commission for a representation through an officer duly authorized for this purpose in writing by the board of directors of the applicant. 7. Transformation of a non-life insurer into a Takaful Operator.- (1) If in case a conventional non-life insurer wishes to transform its conventional business into Takaful business, it shall inform the Commission in writing about its intention for such transformation. The Commission shall on fulfillment of certain requirements, as may be specified from time to time, authorize the Registered Insurer as a Takaful Operator under Rule 9. (2) The registered insurer after being authorized as Takaful Operator, shall cease to underwrite Conventional Insurance products immediately and shall be responsible to cover all liabilities incidental to its conventional business. (3) Till such time the liabilities related to the Conventional Insurance business of such a transformed Takaful Operator are fully paid off, it shall be reported in the Operator Fund of the Takaful Operator. 8. Refusal to grant authorization.- (1) No application for authorization made under rule 5 or rule 6 shall be refused without giving the applicant a reasonable opportunity of being heard. (2) In case the Commission refuses to grant authorization to an applicant, the decision shall be communicated to the applicant in writing stating therein the reasons for such refusal. (3) The applicant, being aggrieved by the decision of the Commission under subrule (2), may apply, within a period of thirty days from the date of receipt of such communication, to the Commission for review of its decision. (4) On receipt of the application made under sub-rule (3), the Commission shall review its decision and communicate its findings, in writing, to the applicant within thirty days and the decision of the Commission in this regard shall be final. 9. Grant of authorization.- (1) The Commission on being satisfied, that the applicant under rule 5(1) or rule 6(1), as the case may be, is eligible for authorization and has complied with the requirements of the Ordinance and these Rules, may grant a certificate of authorization to the applicant in Form A or Form B respectively 5

annexed to the rules. (2) The Commission may, while authorizing an applicant as a Takaful Operator or Window Takaful Operator, specify conditions for such authorization to be complied with by the Takaful Operator or Window Takaful Operator in such manner, as it may deems fit. (3) The certificate of authorization shall remain valid unless it is revoked or suspended by the Commission. (4) Nothing in this rule shall prevent the Commission from exercising the powers available to it under section 63 of the Ordinance to direct an Operator to cease entering into new Takaful Contracts. 10. Conditions applicable to Operator.- (1) An Operator,(a) shall appoint a Shariah Advisor in accordance with the provisions of these Rules; shall appoint a Shariah compliance auditor in accordance with the provisions of these Rules; shall appoint a Shariah compliance officer in accordance with the provisions of these Rules; carrying on Family Takaful business shall set up one or more statutory funds exclusively for Takaful business; carrying on Family Takaful business shall divide each statutory fund set up for Takaful business into a number of sub-funds namely Participant Takaful Funds, an Operator sub-fund and in case of investment contracts a Participant Investment Funds; carrying on General Takaful business shall set up one or more Participant Takaful Funds and an Operator Fund; shall ensure that all investments made for the purposes of Takaful business are made in accordance with the investment policy approved by its Shariah Advisor; shall ensure that assets and liabilities of each Participant Takaful Fund and each Participant Investment Fund are segregated from its other assets and liabilities;

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

shall ensure that receipts to and payments from each Participant Takaful Fund are made in accordance with the provisions of these Rules; shall ensure that the Participant Takaful Fund, at all times, carry reserves as may be specified by the Commission; shall ensure that in case of General Takaful each Participant Takaful Fund, at all times, has admissible assets in excess of its liabilities:

(j)

(k)

Explanation: For this purpose any amount receivable from the Operator shall be deemed to be inadmissible. (l) shall ensure that in case of Family Takaful each Statutory Fund is in compliance with the solvency requirements under the Ordinance:

Explanation: For this purpose any amount receivable from the Shareholders Fund or any Operator sub-fund shall be deemed to be inadmissible. (m) shall ensure that the benefits and obligations of each Participant under a Takaful Contract are documented in a Participant Membership Document; shall manage each Participant Takaful Fund in accordance with the provisions of these Rules; shall formulate detailed policies for each Participant Takaful Fund with the approval of its Shariah Advisor; shall provide funds by way of qard-e-hasna to the Participant Takaful Fund in accordance with the provisions of these Rules; shall determine surplus or deficit in each Participant Takaful Fund in accordance with the provisions of these rules; shall set the fee structure and the profit sharing ratio for investment management in accordance with the provisions of these Rules on the advice of the Shariah Advisor and in case of Family Takaful with the approval of the appointed actuary also; and shall accept risk under re-takaful or participate on co-takaful basis, only where the policy is issued by an Operator as Takaful Contract under these Rules.

(n)

(o)

(p)

(q)

(r)

(s)

Provided that the Operator may, with the approval of its Shariah Advisor, be allowed to participate on co-insurance basis with conventional insurers up till December 31, 2013. (2) An Operator shall not,(a) distribute any material to any person on the extent to which the products of other Operators are compliant with Shariah; and make payment out of Participant Takaful Fund for marketing or sales expenses (including commissions), administrative and management expenses.

(b)

11. Further Conditions applicable to Window Takaful Operator.- (1) In addition to the conditions under Rule 10, a Window Takaful Operator,(a) shall ensure that all its documents pertaining to the takaful operations shall carry the words Window Takaful Operations prominently below the companys name; shall report its assets, liabilities, revenues and expenses separately for each segment of its Conventional business and Takaful business; shall comply with the provisions of these Rules or such other conditions as may be imposed by the Commission from time to time; shall appoint a whole time head of window takaful operations who shall possess relevant experience and knowledge as may be specified by the Commission and shall not be associated with the conventional insurance operations, in any manner.

(b)

(c)

(d)

12. Revocation of Authorization.- (1) The Commission may by order suspend or revoke the authorization of an Operator either wholly or in respect of a class of business, as the case may be, if it is satisfied that,(a) the Operator is carrying on its operations in a manner which is not approved by its Shariah Advisor; the Operator has not commenced business within twelve months after being authorized; the Operator has ceased to carry on Takaful business; the Operator has failed to maintain a surplus of admissible assets over 8

(b)

(c) (d)

liabilities in each Participant Takaful Fund, in case of General Takaful business in accordance with the provisions of these Rules; (e) the Operator has failed to comply with solvency requirements in case of Family Takaful; the Operator is carrying on its Takaful business in a manner likely to be detrimental to the interests of its Participants; the Operator has failed to effect adequate Re-Takaful arrangements; the Operator is contravening or has contravened the provisions of the Ordinance, rules, regulations made thereunder; the Operator has furnished false, misleading or inaccurate information or has concealed or failed to disclose material facts in its application for authorization; it is in the public interest to cancel the authorization.

(f)

(g) (h)

(i)

(j)

(2) No orders shall be made under sub-rule (1) except after giving the Operator, a reasonable opportunity of being heard. CHAPTER III CONDUCT OF TAKAFUL BUSINESS` 13. Establishment of Participant Takaful Fund.- (1) An Operator shall, for each Participant Takaful Fund, formulate Participant Takaful Fund Policies defining: (a) risks being covered, specifically with reference to classes of business defined in Section 4 of the Ordinance (relating each such risk with classes of business as defined in Section 4 of the Ordinance); the events upon which amounts would be payable from the Participant Takaful Fund to a participant and the method of determination of the amount payable; expenses which may be charged to the Participant Takaful Fund; the method and frequency of determining surpluses or deficits of the Participant Takaful Fund, including a definition of how any reserves being set aside in determining such surpluses or deficits are to be arrived at;

(b)

(c) (d)

(e) (f) (g)

the method of disposing of any surplus; the method of extinguishing any deficit; and the procedure of dissolution of Participant Takaful Fund.

(2) The Participant Takaful Fund Policies shall be approved by the Shariah Advisor of the Operator. A copy of the Participant Takaful Fund policy relevant to each Takaful Contract shall be made available to any Participant who requests a copy and shall also be available on the Takaful Operators web-site. (3) Copies of the Participant Takaful Fund Policies shall be provided to the Commission at least fifteen days before any risk is accepted in any new Participant Takaful Fund and for all existing Participant Takaful Funds, the Participant Takaful Fund policy documents shall be submitted to the Commission within ninety days of coming into effect of these Rules. 14. Establishment of Participant Investment Funds.- An Operator carrying on Family Takaful business and issuing contracts which have an investment component shall establish one or more Participant Investment Funds which will be sub-funds of a statutory fund set up for conducting Takaful business. 15. Participant Membership Document.- (1) The benefits and obligations of each Participant under a Takaful Contract shall be documented in a Participant Membership Document detailing therein the terms and conditions relating to the relationship amongst the Participants and between the Participants and the Takaful Operator including the following: (a) (b) rights and obligation of Participants; procedure for division of Contribution between Participant Takaful Funds, Participant Investment Funds and Operator fund/sub-fund; method for determination of fees and/or share of investment income payable to the Operator; procedure for and timing of transfer of funds between Participant Takaful Funds, Participant Investment Funds and Operator fund/subfund; procedure for claims and payment of Takaful Benefits and the method of determining such benefits, including, if applicable, any limitations and exclusions;

(c)

(d)

(e)

10

(f)

in case of Family Takaful contracts, the procedure for pooling of moneys for investment purposes under the Participant Investment Fund; and terms and conditions on which the Operator will manage the Participant Takaful Fund and Participant Investment Fund.

(g)

16. Register of Takaful Contracts.- Each Operator shall maintain a register of Takaful Contracts in such form as may be specified by the Commission and shall be kept at its principle place of business. 17. Segregation of Contributions and Funds General Takaful.- (1) All Contributions recognized under General Takaful contracts, net of any Government levy, shall be credited to one or more Participant Takaful Funds. (2) All Contributions into a Participant Takaful Fund shall be deposited in a bank account designated as belonging to the Participant Takaful Fund or be paid across to such an account within seven days of receipt. (3) All income received on assets of a Participant Takaful Fund and receipts from Re-Takaful operators relating to the Participant Takaful Fund shall be deposited in bank accounts designated as belonging to the Participant Takaful Fund or be paid across to such account within seven days of receipt. (4) All assets, liabilities, income and expenditure of a General Takaful Operator which do not relate to a Participant Takaful Fund shall be deemed to be part of the Operators Fund. 18. Segregation of Contributions and Fund Family Takaful.- (1) Contributions under Family Takaful Contracts, net of any Government levy, shall be segregated into the risk component and takaful operators fee, and, if relevant, the investment component. (2) The risk component shall be credited to one or more Participant Takaful Funds; the takaful operators fee to an Operator sub-fund and any investment component to one or more Participant Investment Funds. (3) The determination of each component shall be in accordance with provisions of each Family Takaful Contract. (4) All Contributions credited to a Participant Takaful Fund or Participant Investment Fund shall be deposited in a bank accounts designated as belonging to Participant Takaful Fund and Participant Investment Fund or paid across to such account within seven days of receipt. 11

(5) All income received on assets of a Participant Takaful Fund and receipts from Re-Takaful operators relating to the Participant Takaful Fund shall be deposited in bank account designated as belonging to the Participant Takaful Fund or be paid across within seven days of receipt. (6) All income received on assets of a Participant Investment Fund shall be deposited in bank account designated as belonging to the Participant Investment Fund or be paid across within seven days of receipt. 19. Receipt, Payment, and Reserves to be Held in Participant Takaful Funds. (1) The receipts of a Participant Takaful Fund shall consist of the following, namely:(a) Contributions from Participants (in the case of a Family Takaful Operator, net of any amounts credited directly to Participant Investment Funds or the Operator sub-fund); share of claims from Re-Takaful operators; investment income generated by the investment of funds retained in the Participant Takaful Fund; in the case of General Takaful, salvages and recoveries; qard-e-hasna; rebate/commission from re-Takaful operators/reinsurers; share of surplus from Re-Takaful operators; and any donation made by the shareholders of the Operator.

(b) (c)

(d) (e) (f) (g) (h)

(2) The payments from a Participant Takaful Fund shall consist of the following, namely:(a) any third party costs directly associated with underwriting (specifically medical examination, pre-cover inspection/surveys, costs of installing tracking systems or any consulting costs related with assessing or reducing the risks being covered), if it has been earlier credited to the Participant Takaful Fund; claims paid related to risks covered under the Participant Takaful Fund and expenses directly related to settlement of claims such as 12

(b)

surveyors and investigators fees, etc; (c) (d) Re-Takaful and reinsurance contributions; Takaful operators fees if it has been credited to the Participant Takaful Fund; share of investment profits of the mudarib or wakala fees for investment management or any other combination thereof approved by the Appointed actuary in the case of Family Takaful operator and Shariah Advisor of the General Takaful Operator; surplus distributed to Participants; refund of any Contribution due to Participants; and return of qard-e-hasna to the Operator fund / Operator sub-fund.

(e)

(f) (g) (h)

20. Qard-e-hasna.- (1) In the case of a General Takaful if, at any point in time admissible assets in a Participant Takaful Fund are not sufficient to cover liabilities , the deficit shall be funded by way of actual transfer of funds as qard-e-hasna (interest free loan) from the Operators Fund to that Participant Takaful Fund. (2) In the case of Family Takaful if, at any point in time a Statutory Fund is not solvent as per the provisions of the Ordinance, the deficit shall be funded by way of actual transfer of funds as qard-e-hasna (interest free loan) from the Shareholders Fund to that Statutory Fund. (3) In the event of surplus in a Participant Takaful Fund to which a Qard-e-Hasna has been made, the Qard-e-hasna shall be repaid prior to distribution of surplus to Participants. (4) If there is deficit in a Participant Takaful Fund for three consecutive years, the Operator shall submit a report signed by the Principal Officer in case of General Takaful and by the appointed actuary also in case of Family Takaful, to the Commission within 30 days of the submission of the regulatory returns under section 46(1) of the Ordinance explaining the reasons thereof. 21. Sharing of surplus.- (1) At the end of each financial year the Operator shall evaluate the assets and liabilities of each Participant Takaful Fund and determine whether the Participant Takaful Fund is in surplus or deficit. (2) A Family Takaful operator shall formulate the mechanism for determination and distribution of surplus duly approved by its appointed actuary. he surplus 13

distribution frequency & its mechanism shall be prepared by the appointed actuary in case of the Family Takaful operator. (3) Subject to sub-rule (2) the surplus distribution mechanism shall specify the frequency, method, entitlement conditions, basis and form of surplus distribution. (4) In the case of General Takaful operators, the operator shall formulate the surplus distribution mechanism for distribution of surplus. (5) The Commission may specify the surplus distribution mechanism for general takaful operators. (6) A Participant may donate its surplus for social or charitable purposes and may request the Operator to arrange for the transfer of the donation. 22. Investment management of funds.- Investment of Contributions in the Participant Takaful Fund and in the Participant Investment Fund shall be managed under a wakala contract, a Modaraba contract or a combination contract as determined to be sound and workable by the Shariah Advisor of the Operator. 23. Re-Takaful.- (1) An Operator shall have adequate Re-Takaful arrangements for Re-Takaful of liabilities in respect of risks undertaken or to be undertaken by the Operator in the course of its carrying on Takaful business. (2) In the event that the limit provided by a Re-Takaful Operator is not sufficient to support the business strategy of the Takaful Operator, the Takaful Operator under the advice of its Shariah Advisor may be allowed to enter into reinsurance contracts with conventional reinsurance companies till December 31, 2013.

Part IV WINDOW TAKAFUL OPERATIONS 24. Transfers of funds by Conventional Insurer into Takaful Business Statutory Funds, Participant Takaful Funds and Participant Investment Funds: (1) A Conventional Insurer carrying on life Insurance business and authorized by the Commission as Window Takaful Operator for Family Takaful may transfer funds from Shareholders Fund to the statutory fund for its Takaful business. (2) A Conventional Insurer carrying on non-life Insurance business and authorized by the Commission as Window Takaful Operator may transfer funds from Operator Fund to a Participant Takaful Fund.

14

Part V COMPLIANCE WITH PRINCIPLES OF SHARIAH

25. Shariah Advisory Board.-(1) The Commission may establish a Shariah Advisory Board consisting of such number of members as may be decided by the Commission. (2) The Shariah Advisory Board will be responsible to formulate policies and guidelines for operation and management of Takaful business in line with Shariah principles: (3) If in the opinion of the Commission different treatment for a similar operational issue is adopted by various operators, with the approval of their Shariah Advisor, the matter shall be resolved by the Shariah Advisory Board and the findings of the Shariah Advisory Board shall be final. (4) The Commission may assign any other responsibility to the Shariah Advisory Board from time to time. 26. Shariah Advisor.-(1) Each Operator shall appoint a Shariah Advisor who shall be responsible for: (a) (b) (c) (d) (e) the approval of products including all related documentation; approval of Participant Takaful Fund policy; approval of investment policy; approval of Re-Takaful arrangements; and approval for the distribution of surplus to participants.

(2) Each Operator shall obtain prior approval from the Commission for appointment of its Shariah Advisor at the time of commencing Takaful business and at later dates if there is a change. (3) The Commission may within thirty days of such submission, based on reasonable grounds, require an Operator to change its Shariah Advisor. (4) The Shariah Advisor, in discharging his responsibilities under sub-rule (1), shall ensure adherence to conditions specified by the Commission upon the advice of the 15

Shariah Advisory Board on all matters. (5) Where an Operator is required to file a document with the Commission which requires prior approval of the Shariah Advisor, the Operator shall along with the requisite document annex the approval of the Shariah Advisor. (6) the minimum qualification and experience of the Shariah Advisor of the takaful operators / window takaful operators shall be as follows: (a) Educational Qualification: Shahadat ul Aalmia Degree (Dars e Nizami) from Madaris recognized by the Higher Education Commission of Pakistan with a certificate in Takhasus fil Ifta / Takhasus fil Fiqh and adequate knowledge of Islamic finance and takaful. (b) Experience and Exposure: Must have at least 4 years experience of giving Shariah rulings including the period of Takhasus fil Ifta or Takhasus fil fiqh and must also have sufficient command over English language and applicable Pakistani laws. (7) A person cannot work as Shariah Advisor at a time for more than three Operators in Pakistan. 27. Shariah Compliance Officer,- (1) An Operator shall appoint with the advice of the Shariah Advisor, a Shariah compliance officer. (2) The Shariah compliance officer shall ensure that all the policies formulated and approved by the Shariah Advisor are implemented in the operations of the Operator. (3) The Shariah compliance officer shall directly report to the Shariah Advisor of the Operator and cannot be removed without his permission.

Part IV MISCELLANEOUS

28. Training.- (1) Each Operator shall provide training to all its managerial level personnel and entire sales force on the concept and operations of Takaful. (2) The operator may arrange an in house training program with prior approved training course outline from the Commission and the Operator can also get their 16

managerial level personnel and sales force trained through institutions approved by the Commission to provide this training. (3) Such training course shall be conducted for a minimum of twenty hours duration. (4) The training course referred in sub rule (1) should be completed within one year, in case of existing employees and from the date of notification of these Rules and in case of new employees from the date of their induction.

29. Accounting and Reporting:- (1) The Commission shall issue accounting regulations for accounting treatments for Takaful operations of the Operators. (2) For the purposes of sub-sections (1) and (2) of section 46 of the Ordinance the statements shall be furnished in the form as may be specified by the Commission.

30. Shariah Compliance Audit.-(1) An Operator shall appoint an external Shariah compliance auditor who will conduct its audit for each accounting period. (2) The Shariah compliance audit shall report on the state of compliance by the Operator with the requirements of these Rules. (3) The Shariah Compliance auditor shall submit its report on Shariah audit of the Operator to the Board of Directors and Shariah Advisor of the Operator and to the Commission along with the regulatory returns furnished under Section 46 of the Ordinance. (4) Auditors as defined under sub-section (v) of Section 2 of the Ordinance, having adequate resources to conduct Shariah audit shall be eligible to carry on Shariah compliance audit. 31. Repeal and savings - (1) Takaful Rules, 2005 are hereby repealed. (2) Save as otherwise specifically provided, nothing in these Rules, or any repeal effected thereby, shall affect or be deemed to affect anything done, action taken, investigation or proceedings commenced, order, appointment, conveyance, mortgage deed, document or agreement made, fee directed, resolution passed, direction given, proceedings taken or instrument executed or issued, under or in pursuance of any rules or notifications repealed by these Rules and any such thing, action, investigation, proceedings, order, appointment, conveyance, mortgage deed, document, agreement, fee, resolution, direction, proceedings or instrument shall if in force at the coming into force of these Rules and not inconsistent with any of the provisions of these Rules, continue to 17

be in force, and have effect as if it were respectively done, taken, commenced, made, directed, passed, given, executed or issued under these Rules.

18

FORM A [See Rule 5 of the Takaful Rules, 2012]

SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN

Authorization Reference No. .

AUTHORISATION UNDER RULE 5 OF THE TAKAFUL RULES, 2012 TO ACT AS A TAKAFUL OPERATOR

The Securities and Exchange Commission of Pakistan having considered the application for grant of authorization filed under Rule 5 of the Takaful Rules, 2012 by . bearing Insurance Registration # dated .... and now being satisfied that the said company is eligible to transact Family / General Takaful business, hereby grants, in exercise of powers conferred under Rule 9 of the Takaful Rules 2012, authorization to transact classes of Family / General Takaful business as specified herein below.

Executive Director Date/Place of Issue..

Classes of business which may be transacted: ____________________________________ ____________________________________ ____________________________________ ____________________________________ 19

FORM B [See Rule 6 of the Takaful Rules, 2012]

SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN

Authorization Reference No. .

AUTHORISATION UNDER RULE 6 OF THE TAKAFUL RULES, 2012 TO UNDERTAKE TAKAFUL WINDOW OPERATION IN RESPECT OF FAMILY OR GENERAL TAKAFUL PRODUCTS

The Securities and Exchange Commission of Pakistan having considered the application for grant of authorization filed under Rule 6 of the Takaful Rules, 2012 by . bearing Insurance Registration # .. dated .... and now being satisfied that the said company is eligible to transact Window Takaful Operation in respect of Family or General Takaful products, hereby grants, in exercise of powers conferred under Rule 9 of the Takaful Rules 2012, authorization to transact classes of Window Takaful business in respect of Family / General Takaful products as specified herein below.

Executive Director Date/Place of Issue..

Classes of business which may be transacted: ______________________________ ______________________________ ______________________________ ______________________________

20

PART II Statutory Notification (SRO) GOVERNMENT OF PAKISTAN

SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN NOTIFICATION Islamabad, the 18th June, 2013

S.R.O.584(I)/2013.- In exercise of the powers conferred by Section 83 read with Section 167 of the Insurance Ordinance, 2000 (XXXIX of 2000) and clause (u) of subsection (4) of section 20 of the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997) , the Securities and Exchange Commission of Pakistan is hereby pleased to publish the following draft rules for information of all persons likely to affected thereby and notice is hereby given that objections suggestions if any, received within a period of thirty days from its publication in the Official Gazette, shall be taken into consideration:-

1. Short title and Commencement.- (1) Commission (Microinsurance) Rules, 2013.

These rules shall be called the Securities and Exchange

(2)

These shall come into force at once.

2. Definitions.(1) In these rules, unless the context requires otherwise;

(i)

alternative dispute resolution means procedure for settling disputes by a process other than litigation, through the use of a forum in which parties can resolve their own disputes, with the help of a neutral third party such as by arbitration or mediation.

(ii)

branchless banking means conduct of financial service activities as outlined in the context of these rules by financial institutions authorized by the State Bank of Pakistan for conducting such activities under the relevant laws.

(iii)

branchless banking agent means agent providing financial services to the customers under a valid agency agreement as a part of branchless banking.

(iv)

Commission means the Securities and Exchange Commission of Pakistan established under the Securities and Exchange Commission of Pakistan Act, 1997;

(v)

family means the husband, wife, dependent father, mother, minor brother or minor sister, or minor sons or unmarried daughters. Provided further that an insurer may, keeping within the aforesaid parameters laid down for the composition of the family, define family as per the requirement of the individual or group.

(vi)

file and use procedure means that unless Commission instructs the insurer to desist from launching the product, or to alter certain product features, the insurer can proceed to launch the product.

(vii)

life microinsurance means business of insurance as defined in Class 1 and 4 under Section 4(1) of the Ordinance and as may be prescribed by the Commission, subject to meeting the criteria as defined in Schedule-I.

(viii)

low-income person means a person whose monthly income is less than the minimum taxable income as prescribed by the Government of Pakistan or as may be prescribed by the Commission for the purpose of these rules.

(ix)

microinsurance means insurance products and services for low income persons that meet their needs for risk protection and relief against distress, misfortune or contingent event for modest and defined benefit levels.

(x)

microinsurance agent means an individual or a body corporate subject to the requirements as laid down in Section 96 of the Ordinance.

(xi)

microinsurance policy means a contract of microinsurance;

(xii)

microinsurance policyholder means the person to whom a microinsurance policy is issued or, in the case of a policy of life microinsurance, the person to whom the whole of
2

the interest of the policyholder in the policy is assigned once and for all, but does not include an assignee thereof whose interest in the policy is defeasible or is for the time being subject to any condition.

(xiii)

non-life microinsurance means business of insurance as defined in Class 1 ,7, 8 and 9 under Section 4(3) of the Ordinance and as may be prescribed by the Commission, subject to meeting the criteria as defined in Schedule-I. Ordinance means the Insurance Ordinance, 2000;

(xiv)

(xv) (xvi)

Rules means the Securities and Exchange Commission (Microinsurance) Rules, 2013 SEC Rules means the Securities and Exchange Commission (Insurance) Rules, 2002

(xvii)

specified person means either an employee of the microinsurance agent or an employee of the insurer who is responsible for soliciting and procuring microinsurance business for the insurer under the agency agreement between the insurer and microinsurance agent.

(xviii)

third party administrator means a body corporate which performs agreed administrative functions for the Insurer.

(2) In these Rules, the word microinsurance may be used interchangeably with the word microtakaful, life microinsurance with family microtakaful, non-life microinsurance with general microtakaful, premium with contribution and insurer with operator. (3) All words and expressions used in these Rules and not defined here shall have the same meaning as assigned to them in the Insurance Ordinance, 2000, the Securities and Exchange Commission of Pakistan Act, 1997 or in any Rules or Regulations made there under. 3. Contract and disclosure Requirements.(1) A microinsurance policy shall clearly state the benefits and terms of coverage. The insurer providing microinsurance shall ensure that the contract provisions in the microinsurance policy can easily be understood by the insured and are printed in legible form and font, at least in simple Urdu language.

(2)

A microinsurance policy shall contain least key facts as provided in Schedule-II.

(3) Every microinsurance product, including the policy document and marketing material shall prominently carry the caption Microinsurance Product.

4. Product Features and Submission.(1) Every insurer shall be subject to the file and use procedure with respect to filing of microinsurance products or as may be prescribed by the Commission. (2) Insurers shall submit to the Commission the details of microinsurance products, along with summary description of claims process, at least 30 days prior to the intended launch date of such microinsurance product. The filing details under this sub-rule shall at least include the product specification, policy document, product brochure or marketing material, distribution channel agreement and details of the sales process to be followed for such microinsurance product. (3) Such file and use procedure shall apply for every new microinsurance product or to any existing microinsurance product already approved by the Commission if any significant revisions in policy terms, conditions, premium or benefit levels have been made to such existing microinsurance product by the insurer.

(4) For life microinsurance, when filing with the Commission, the insurer shall be required to submit the details as per the requirements laid down in Section 6 (8) of the Ordinance, in addition to the summary description of claims process to be followed for such microinsurance product.

(5) For non-life microinsurance, when filing with the Commission, the insurer shall be required to submit the microinsurance product details and summary description of claims process, in addition to the requirements as may be prescribed by the Commission.

(6) Every insurer shall also submit to the Commission a copy of any written, electronic or other material proposed to be issued by the insurer for mass communication or for communication with the microinsurance policyholder or prospective microinsurance policyholder, in respect of the marketing of microinsurance products to be offered by such insurer. 5. Intermediation.(1) In addition to an insurance agent or insurance broker licensed under the Ordinance, microinsurance products may be distributed through a microinsurance agent.

(2) A microinsurance agent shall be appointed by an insurer in the same manner as required under the Section 95(2) of the Ordinance.
4

(3) The microinsurance agent shall be required to perform one or more of the following functions, as specified in the agency agreement, namely:

(a) (b) (c) (d)

collection of proposal forms; collection of self-declaration form from the proposer that he/she is in good health; collection and remittance of premium; distribution of microinsurance policy documents;

(e) maintenance of register of all those insured and their dependents covered under the microinsurance policy, together with details of name, gender, age, address, nominees and thumb impression/ signature of the microinsurance policyholder; (f) (g) assistance in the settlement of claims; ensuring nomination to be made by the insured;

(h) the selling, marketing and delivery of microinsurance on behalf of an insurer under an agreement; and (i) any other service as may be specified by the Commission.

(4) The microinsurance agent or the specified persons of the microinsurance agent, shall undergo a training program of a duration not less than twenty (20) hours to be conducted by the respective insurer or any organization as may be approved by the Commission, with a thorough focus on consumer protection as outlined in Schedule-III of these rules. This training program shall follow the broad outline prescribed by the Commission.

(5) In case of the provision of microinsurance through branchless banking operators acting as microinsurance agents, the branchless banking agent shall undergo a training program of a duration not less than four (4) hours to be conducted by the respective branchless banking operator or any organization as may be approved by the Commission, with a thorough focus on consumer protection as outlined in Schedule-III of these rules. This training program shall follow the broad outline prescribed by the Commission.

(6) The insurer shall be required to report the details of its microinsurance agents to the Commission as part of its annual returns by including a statement of the insurance premium written through the microinsurance agent, subdivided by classes of microinsurance business, along with a statement of commission, by whatever name called, received or receivable by the microinsurance agent, subdivided by classes of microinsurance business.
5

(7) A microinsurance agent may be paid remuneration for all the functions rendered as outlined in the agency agreement, by an insurer, and the same shall commensurate within the limits as prescribed by the Commission from time to time.

(8) Where the agreement between the microinsurance agent and insurer is terminated for any reason whatsoever, no remuneration which is to be incurred in future, shall be payable.

(9) Any of the functions as specified in sub-rule (3) above may be performed by a third party administrator at the sole discretion of the insurer. The insurer shall enter into an agreement with the third party administrator which specifies the functions required to be performed and the remuneration payable to the third party administrator.

6. Registration & Licensing.(1) Microinsurance, by whatsoever name called, shall only be undertaken by the entities having certificate of registration in accordance with Section 6 of the Ordinance and duly authorized by the Commission to carry out such activities.

(2) All entities providing microinsurance, by whatever name called, as defined in these rules, that are not authorized shall be required to acquire authorization from the Commission to act as an insurer to provide microinsurance or become a microinsurance agent under an agency agreement with a licensed insurer within six months of notification of these rules. In case any entity fails to take necessary authorization or license as the case may be, action shall be taken against such entity in accordance with provisions of the Ordinance read with Securities and Exchange of Pakistan Act, 1997.

7. Claim Handling and Process.(1) The documentation required by an insurer for issuance of the microinsurance policy and settlement of claims shall be kept minimal by the insurer or as may be prescribed by the Commission.

(2) All insurers shall process and settle microinsurance claims within a maximum period of fourteen (14) days upon the receipt of all required documents as stated in the microinsurance policy document.

(3) The insurers and microinsurance agents shall implement and follow the claims procedures and claims documentation requirements as specified in the respective microinsurance policy document.

8. Complaints and Grievance Handling.(1) All microinsurance related complaints should be handled in the first place by the insurer and the insurer shall ensure that the complaints shall be acted upon within 5 working days from filing of a complaint along with completion of all documentation requirements and a resolution shall be made within 25 working days from such time.

(2) Notwithstanding anything against the sub-rule (1), if the complaint is not resolved at the level of the insurer, the complaint may be referred by the insured to an alternative dispute resolution service approved by the Commission from time to time.

(3) Notwithstanding anything against the sub-rule (2), if the complaint is not resolved at the level of the alternative dispute resolution service, the complaint may be referred by the insured to the Insurance Ombudsman. The complaint may also be referred by the insured to the Small Disputes Resolution Committee subject to the provisions of Section 117 of the Ordinance.

(4) Every insurer undertaking the microinsurance business shall establish an internal dispute resolution mechanism for client complaints and grievances handling, which shall facilitate the microinsurance policyholders for speedy resolution of complaints.

(5) The Commission, where deem appropriate may direct the insurer and the microinsurance agents for any change in their complaints and grievance handling mechanism.

9. Code of Conduct and Consumer Protection.(1) The insurer shall strictly follow the code of consumer protection as prescribed by the Commission in Schedule-III of these rules. Such code of consumer protection shall be written at least in a simple Urdu language in the microinsurance policy document and communicated directly to the insured by the microinsurance agent or their specified person.

(2) The microinsurance agents and their specified persons shall strictly follow the code of conduct as prescribed by the Commission in Schedule-IV of these rules. It shall be the responsibility of the
7

insurer to ensure that microinsurance agent and its specified persons are abiding by the prescribed code of conduct.

10. Prudential rules.(1) For life insurers the annual financial condition report shall specifically consider the implications of the microinsurance business on the financial soundness of the insurer as required under Section 50 of the Ordinance.

11. Regulatory reporting and Information Sharing.(1) For each insurer conducting microinsurance business, it will be required to provide regulatory returns under current reporting requirements but with microinsurance identified as a distinct category of the respective class of business. The insurer conducting microinsurance business shall submit the regulatory returns to the Commission, as prescribed in Schedule-V in addition to any existing reporting requirements under the Ordinance.

(2) The Commission where deem appropriate may share any information related to microinsurance among the microinsurance providers or general public through the means it deems appropriate.

(3) Every year on or before the 30th day of April the insurer shall submit post-profiling assessment of the microinsurance product as filed earlier under the file and use procedure in a manner as may be prescribed by the Commission.

12. Offences and Penalties.(1) Whoever, contravenes Rules shall be punishable in accordance with the provisions of Ordinance and Securities and Exchange Commission of Pakistan Act, 1997

Schedule I [See Rule 2 (vii) & (xiii)] Definition of Microinsurance

1. Life Microinsurance.-

(1)

Life microinsurance shall not have the sum insured exceeding:

(a) (b)

For single life microinsurance, 25 times of the minimum monthly wage prescribed by the federal government; For joint life microinsurance, 40 times of the minimum monthly wage prescribed by the federal government;

(2)

Health microinsurance offered by life insurers shall not have the sum insured exceeding: (a) (b) For individual health microinsurance, 6 times of the minimum monthly wage prescribed by the federal government; For family health microinsurance, 12 times of the minimum monthly wage prescribed by the federal government;

(3) The provisions (1) and (2) above shall satisfy the definition of low-income person as specified in the definitions.

2. (1)

Non-Life Microinsurance.Non-life microinsurance shall not have the sum insured exceeding:

(a) (b) (c) (d)

For tools, belongings, implements, hutments and other assets microinsurance, 12 times of the minimum monthly wage prescribed by the federal government; For livestock microinsurance, 40 times of the minimum monthly wage prescribed by the federal government; For crop microinsurance, 40 times of the minimum monthly wage prescribed by the federal government; For personal accident microinsurance, 25 times of the minimum monthly wage prescribed by the federal government;

(2)

Health microinsurance offered by non-life insurers shall not have the sum insured exceeding:
9

(a) (b)

For individual health microinsurance, 6 times of the minimum monthly wage prescribed by the federal government; For family health microinsurance, 12 times of the minimum monthly wage prescribed by the federal government;

(3) The provisions (1) and (2) above shall satisfy the definition of low-income person as specified in the definitions.

10

Schedule II [See Rule 3(2)] Key Features of a Microinsurance policy

The following features shall be applicable to life and non-life microinsurance policies:

(a)

Coverage: A microinsurance policy shall cover the insured severally or jointly with the insureds family and/or the insureds assets; Period of cover: The term of the microinsurance policy shall state the period of cover, to be determined by the insurer depending on the type of coverage; Terms and conditions: A microinsurance policy shall clearly state the sum insured, benefits and terms of insurance coverage. The manner and frequency of premium collections shall, if possible, coincide with the cash flow of the insured and may be collected daily, weekly, monthly, quarterly, semi-annually, and annually whichever is applicable. Effectivity: A microinsurance policy shall become effective immediately if either the microinsurance policy has been issued by the insurer or the first premium has been paid in full by the microinsurance policyholder, whichever is the earliest. Claims procedures: A microinsurance policy shall clearly state when, where and how can a microinsurance policyholder make a claim, the documents required to make such claim, the claims process and expected turnaround time for settlement of the claim. Dispute resolution: A microinsurance policy shall clearly state when, where and how can a microinsurance policyholder make complaint. This should state the contact details of both the insurer as well as the insurance ombudsman. Waiting periods: maximum of 6 months for death or disability due to natural causes for policyholders not exceeding the age of 65 years. No waiting period shall be allowed for accidental death or accidental disability. Grace period: 30 days grace period is allowed for any microinsurance policy. If there is a claim made during such grace period, the outstanding premium shall be deducted from such claim amount. Exclusions: All exclusions shall be clearly stated in the microinsurance policy document. No exclusions shall be allowed for pre-existing conditions unless insurer can clearly justify otherwise to the Commission. Deductibles: No deductibles shall be allowed in microinsurance policies unless insurer can clearly justify otherwise to the Commission.
11

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

(k)

Renewals: The insurer shall send notices to the microinsurance policyholder at least 45 calendar days prior to expiration of the contract. Such notice shall include in clear terms whether the contract may or may not be renewed and any changes to be made thereon, if renewed. Contestability: The contestability period for a microinsurance policy shall be one (1) year. Premium payment: The microinsurance policy shall clearly state the amount of premiums to be paid with respect to the policy, where and how to pay such premium and the consequences if premiums are not paid.

(l)

(m)

12

Schedule III [See Rule 9(1)] Code of Consumer Protection

This code of consumer protection shall be directly applicable to all insurers transacting the business of microinsurance. However, the insurers shall also ensure that their microinsurance agents and their specified persons fully understand and comply with this code.
1. Transparency.-

(1) The insurer shall provide to microinsurance policyholders with complete, accurate and understandable information regarding the microinsurance products offered to such policyholders. The wording, language and format of disclosures should be in a form that microinsurance policyholders with limited financial experience or literacy can comprehend. To adhere to this core value, the insurer shall ensure that:

(a)

any disclosure made to the microinsurance policyholder is written at least in Urdu language, avoiding any technical and legal terminology, to the maximum extent possible. key facts about the microinsurance policy are disclosed to the microinsurance policyholders before or at the time of inception of the microinsurance policy contract such as:

(b)

(i) (ii) (iii)

what it does and does not provide cover for such exclusions; term of the microinsurance policy; the premium amount due and premium payment frequency;

(iv) when and how a claim can be made under the microinsurance policy; (v) (vi) what is the sum insured of such microinsurance policy which can be claimed; renewal conditions of the microinsurance policy, if any.

(c)

the microinsurance policyholder is informed about the name of the insurer, written clearly in the microinsurance policy document and any other key facts documents.

13

(d)

the microinsurance policyholder is informed about the claims process, claim documents required and recourse mechanisms. the microinsurance policyholder is informed about their responsibilities towards the insurer as clients, such as timely payment of premium and otherwise. the microinsurance policyholder is informed about the obligations of insurers, microinsurance agents and others as may be relevant.

(e)

(f)

2.

Fair Practices.-

(1) The microinsurance shall be completely devoid of unethical, illegal and unfair practices. The microinsurance services shall be provided to microinsurance policyholders in a manner that is legal, ethical, non-discriminatory and free of deception. To adhere to this core value, insurers shall agree to:

(a)

incorporate ethical and non-discriminatory values into their operations and act fairly, responsibly and reasonably while conducting microinsurance business activities; provide microinsurance services to microinsurance policyholders regardless of gender, religion, race, sect or language; act as competent and responsible microinsurance providers and make sure that the microinsurance is sold based on a sound and thorough assessment of the needs of microinsurance policyholders, including ability to pay the premium; ensure that mechanisms are in place that will mitigate the impact of high pressure sales practices, by ensuring that microinsurance policyholders have reasonable time to consider the suitability of the microinsurance product on offer such that the microinsurance policy, not being a group life microinsurance policy, shall be liable to be cancelled at the option of the microinsurance policyholder within fourteen days of commencement, and if the microinsurance policyholder cancels the microinsurance policy within that time, all amounts paid by way of premium shall be refunded by the insurer, without any deduction for management expenses, other than expenses incurred in connection with the medical examination of any person insured under such microinsurance policy; ensure that microinsurance services are provided using the most efficient methods possible to enable access to financial services by low income households at a reasonable cost; ensure that the claim settlement process shall be simple, efficient and friendly to clients; monitor claims settlement performance through such measures as loss ratios and claim turnaround time.
14

(b)

(c)

(d)

(e)

(f)

(g)

3.

Privacy and Fair Disclosure.-

(1) The insurer shall responsibly safeguard the information provided by microinsurance policyholder and maintain the privacy of such microinsurance policyholder while upholding fair disclosure. To adhere to this core value, the insurer shall agree to:

(a)

keep the personal information of microinsurance policyholder strictly confidential, implement privacy measures with respect to such information disclosure and not pass it on to external users for any unauthorized purpose, except where required under the applicable laws; restrict the divulgence of information of microinsurance policyholder to any third party, except in the circumstances where:

(b)

(i)

the microinsurance policyholder has been informed about such disclosure and permission has been obtained from such policyholder; the party seeking the information has been authorized by the microinsurance policyholder for such purpose; it is legally required to do so;

(ii)

(iii)
4.

Client Recourse.-

(1) The insurer shall ensure that microinsurance policyholders have a recourse avenue that is effective and straightforward. To adhere to this core value, the insurer shall agree to:

(a)

make itself easily accessible to the microinsurance policyholders, through telephone in case they have complaints or suggestions; set up internal complaint handling systems which shall take steps to correct any omissions and handle complaints effectively; provide, at the time of the microinsurance policy inception, the contact details of the insurer and the insurance ombudsman to the microinsurance policyholder, for the resolution of any potential complaints; inform the microinsurance policyholder about the free look period, as required in para 2(1)(d), at the time of the microinsurance policy inception conduct a biennial client survey in order to gauge the effectiveness of the microinsurance products and client satisfaction levels
15

(b)

(c)

(d)

(e)

16

Schedule IV [See Rule 9(2)] Code of Conduct for Microinsurance Agents

This Code of Conduct for Microinsurance Agents shall be applicable to all microinsurance agents and their specified persons.
1. Transparency.-

(1) The dissemination of transparent and truthful information to clients is critical for effective microinsurance. Clients shall be provided with complete, accurate and understandable information regarding the products offered to them. The wording, language and format of disclosures shall be in a form that microinsurance policyholders with limited financial experience or literacy can readily comprehend.
2. Fair Practices.-

(1) It is important that microinsurance should be completely devoid of unethical, illegal and unfair practices. It is important to provide the microinsurance services to the policyholders or intending policyholders in a manner that is legal, ethical, non-discriminatory and free of deception.
3. Privacy and Fair Disclosure.-

(1) It is important to responsibly safeguard the information provided by the microinsurance policyholder and to maintain such privacy and uphold fair disclosure.
4. Client Recourse.-

(1) It is important that the microinsurance policyholders have a recourse avenue, communicated clearly by the microinsurance agent to the microinsurance policyholders, which is effective and straightforward.
5. Dignified Treatment.-

(1) The microinsurance agents and their specified persons shall be cognizant of the need to be fair, disciplined and respectful in the provision of microinsurance. They shall also realize the necessity of preserving the dignity of microinsurance policyholders or prospective policyholders at all times as well as being respectful of cultural and gender matters.
17

(2) The microinsurance agents and their specified persons shall avoid inappropriate occasions such as bereavement in the family or other such calamitous occurrences for making calls or visits to collect premium and wait for a period of no less than seven days before making these calls or visits.

(3) The microinsurance agents and their specified persons shall interact with microinsurance policyholders in an acceptable verbatim language and dignified manner and spare no efforts in fostering the confidence of microinsurance policyholder..

(4) The microinsurance agents and their specified persons shall maintain decency and decorum during a collection of premium visit to a microinsurance policyholder and scrupulously avoid any demeanour which would indicate any kind of threat or violence.

(5) The microinsurance agents and their specified persons shall be considerate of a client's need for privacy when they present any queries or problems.

18

Schedule V [See Rule 11(1)] Reporting requirements for Insurers selling Microinsurance
Every insurer transacting the business of microinsurance shall be subject to the following regulatory reporting requirements:
1. Regulatory Returns.-

(1) For life microinsurance, when filing with the Commission the following items of information, which shall identify microinsurance as a separate category of business, in addition to the requirements laid down in Part VII of the Ordinance, shall be required; a. b. c. Statement of revenue and expenses (Form LD); Statement of premiums (Form LE); Statement of claims (Form LF).

(2) For non-life microinsurance, when filing with the Commission the following items of information, which shall identify microinsurance as a separate category of business, in addition to the requirements laid down in Part VII of the Ordinance, shall be required; a. b. c. d. e. Statement of premiums (Form GD); Statement of claims (Form GE); Statement of expenses (Form GF); Analysis of claims (Form GH); Risk exposure (Form GI).

_____________________________________________________________________________________________ No.SECP/ID/MI/REG/2013/6814

(BUSHRA ASLAM) Secretary to the Commission

19