Draft Employees Contributory Funds (Investment in Listed Securities) Regulations, 2018

GOVERNMENT OF PAKISTAN
SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN -.-.-

Islamabad, the 9 th April, 2018
NOTIFICATION
S. R. O. 435 (I)/2018. – The following draft Employees Contributory Funds (Investment in Listed Securities) Regulations, 2018, proposed to made by the Securities and Exchange Commission of Pakistan in exercise of powers conferred by section 512 read with sub-clause (ii) of clause (b) of sub-section (2) of Section 218 of the Companies Act, 2017 (Act No. XIX of 2017), is hereby published for the information of all persons likely to be affected thereby and notice is hereby given that objections and suggestions, if any, received within fourteen days from the date of notification of these regulations will be taken into consideration, namely:-

1. Short title, commencement and application. – (1) These Regulations shall be
   called the Employees Contributory Funds (Investment in Listed Securities) Regulations, 2018. (2) They shall come into force at once. (3) These Regulations shall apply to all provident funds, contributory pension funds or any other contributory retirement funds constituted by a company or where a trust has been created by a company to manage such funds in respect of all the investments made by company or trust, as the case may be, in bonds, redeemable capital, debt securities or instruments issued by a statutory body, units of collective investment schemes registered as notified entities with the Commission and in listed securities including shares of companies, bonds, redeemable capital, debt securities and equity securities. Provided that these Regulations shall not apply to a company governed under Voluntary Pension Systems Rules, 2005. (4) Within one year from the date of commencement of notification of these Regulations, all investments from the provident fund, contributory pension fund or any other contributory retirement fund constituted by a company or where a trust created by a company with respect to provident fund, contributory pension fund or any other contributory retirement fund, as the case may be, shall be brought in conformity with the provisions of these Regulations. (5) The fund or trust, as the case may be, shall obtain one time written permission from the employees for allowing the fund or the trust for making any investment out of their contributory fund or trust under these Regulations.

2. Definitions. – (1) In these Regulations, unless there is anything
   repugnant in the subject or context, –
   (a) “Act” means the Companies Act, 2017 (Act No. XIX of 2017); (b) “Annexure” means annexure appended to these Regulations; (c) “Contribution” means all the money contributed to fund or trust, as the case may be, either by the employees or the company or both; (d) “Fund” means a provident fund, contributory pension fund or any other contributory retirement fund constituted by a company for its employees or any class of its employees; (e) “Initial public offer” means the IPO of a company; (f) “Size of fund or Trust” means total assets of the contributory fund or Trust, as the case may be, including realized profit on such investments at cutoff date; and (g) “Trust” means a trust created under the Trust Act, 1882 (ACT NO.II OF 1882), by the company with respect to provident fund, or any other contributory retirement fund; (2) In these Regulations, all words and expressions used but not defined shall, unless there is anything repugnant in the subject or context, have the same meanings as are assigned to them in the Companies Act, 2017(Act No. XIX of 2017), the Non-Banking Finance Companies (Establishment Regulations), 2003 and the Non-Banking Finance Companies and Notified Entities Regulations, 2008.

3. Limit for investment in listed securities.- (1) Where the Company or trust
   decide to make an investment out of the fund or trust, as the case may be, in:
   (i) bonds, redeemable capital, debt securities or instruments issued by a statutory body or; (ii) securities listed on Pakistan Stock Exchange, including shares of companies, bonds, redeemable capital, debt securities, equity securities and collective investment schemes registered as notified entity with the Commission under Non-Banking Finance Companies and Notified Entities Regulations, 2008; (2) total investment, at the time of making investment in bonds, redeemable capital, debt securities or instruments issued by a statutory body or listed debt securities, debt collective investment schemes and money market collective investment schemes registered as notified entity with the Commission under Non-Banking Finance Companies and Notified Entities Regulations, 2008, shall not exceed fifty per cent of the size of the fund or trust, as the case may be; Provided that, total investment in bonds, redeemable capital, debt securities or instruments issued by a statutory body or listed debt securities, debt collective investment schemes and money market collective investment schemes registered as notified entity with the Commission of a particular sector, as per the sector classification made by the Pakistan Stock Exchange, shall not exceed twenty percent of fifty percent of the size of the fund at the time of making such investment;

(3) total investment, at the time of making investment in listed equity securities and equity collective investment schemes, registered as notified entity with the Commission under Non-Banking Finance Companies and Notified Entities Regulations, 2008, shall not exceed thirty per cent of the size of the fund or trust, as the case may be; Provided that, total investment in listed equity securities and equity collective investment schemes, registered as notified entity with the Commission of a particular sector, as per the sector classification made by the Pakistan Stock Exchange, shall not exceed ten percent of thirty percent of the size of the fund at the time of making such investment; (4) the aggregate investment in bonds, redeemable capital, debts securities or instruments issued by a particular statutory body or in listed debt securities of a particular company shall not exceed ten per cent of the investment limit provided in clause (2) of Regulation 3, as the case may be, or five per cent of that issue, whichever is lower; (5) the aggregate investment in bonds, redeemable capital, debt securities or instruments issued by a constituting statutory body or listed debt securities of constituting company or its associated companies out of fund or trust, as the case may be, shall not exceed five per cent of the investment limit provided in clause (2) of Regulation 3 as the case may be; (6) the aggregate investment in listed equity securities of a particular company shall not exceed five per cent of the investment limit provided in clause (3) of Regulation 3 or five per cent of the paid up capital of the investee company whichever is lower; (7) the aggregate investment in listed equity securities of constituting company or its associated companies out of fund or trust, as the case may be, shall not exceed five per cent of the investment limit provided in clause (3) of Regulation 3, as the case may be; (8) the aggregate investment in money market collective investment schemes managed by a single asset management company shall not exceed ten per cent of the investment limit provided in clause (2) of Regulation 3, as the case may be; (9) the aggregate investment in any single equity collective investment scheme shall not exceed five per cent of the investment limit provided in clause (3) of Regulation 3, as the case may be; (10) the aggregate investment in initial public offers (IPO) of equity securities shall not exceed five per cent of the investment limit provided in clause (3) of Regulation 3, as the case may be, every six months in a calendar year; Provided that, the aggregate investment in one IPO of equity securities shall be restricted to one per cent of paid-up capital of the investee company or two per cent of the investment limit provided in clause (3) of Regulation 3, whichever is lower;

4. Conditions for investment in listed securities.- Where the provident fund of
   a company or trust decide to make, out of fund or trust, as the case may be, investment in:
   (i) equity securities of companies listed on Pakistan Stock Exchange; or (ii) bonds, redeemable capital, debt securities or similar instruments listed on Pakistan Stock Exchange; or (iii) collective investment schemes registered as notified entity with the Commission under Non-Banking Finance Companies and Notified Entities Regulations, 2008; or (iv) bonds, redeemable capital, debt securities or instruments issued by a statutory body; such investment shall be subject to the following conditions, namely:- (a) where an investment is made in equity securities of listed companies, it shall be made only where such companies,— (i) have a minimum profitable operational record of immediate three preceding years; (ii) have paid average dividend of not less than fifteen percent to the shareholders during two out of three preceding consecutive years; (iii) The minimum free float of the Company shall not be less than fifteen percent or fifty million shares whichever is higher; and (iv) The shareholders equity of such company shall not be negative. (b) where investment is made in bonds, redeemable capital, debt securities or instruments issued by a statutory body or listed debt securities of a company:
   (i) such securities shall be assigned a minimum rating of “AA-” by a credit rating company licensed with the Commission and with at least a stable outlook at the time of investment; Provided that the Commission may, from time to time, change the minimum rating of a security assigned in this clause. (c) where investment is made in collective investment schemes which may invest in debt securities, the investment policy of such scheme shall be in line with the criteria provided in clause (b) of Regulation 4; (d) where investment is made in money market collective investment schemes, itshall be made only in those money market schemes which have been assigned a minimum rating of “AA-” by a credit rating company licensed with the Commission and with at least a stable

outlook at the time of investment;
Provided that the Commission may, from time to time, change the minimum rating of a security assigned in this clause:
(e) where investment is made in equity collective investment schemes, the investment policy ofsuch schemesshall be in line with the criteria provided in clause (a) of Regulation4; (f) investment in IPO shall be made subject to the following conditions, namely:- (i) investment in IPO of equity securities out of the fund or trust, shall be made in companies having profitable operational record; (ii) fund or trust, shall not subscribe to an IPO of equity securities underwritten in any way by its associated companies or associated undertakings; and (iii) fund or trust, shall not subscribe to an IPO of a greenfield project. (g) investment in collective investment schemes that are hybrid in nature shall follow the investment limits provided in clause (1)(ii) of Regulation 3 and hybrid funds shall comply with the condition for investments provided in clause (c) and (e) of Regulation 4; (h) Where the aggregate investment in listed equity securities, other than equity collective investment schemes is fifty million rupees or above, the fund or trust shall appoint or seek advice from investment advisor holding a valid license from the Commission for providing investment advisory services; Provided that where investment is made on the advice of the investment advisor the conditions for investment criteria provided in clause (iv)(a) of Regulation 4 shall not be applicable; Provided further that, investment advisor will be held liable under Section 282J of the repealed Companies Ordinance, 1984 in case of loss to fund or trust due to his negligence; (i) investment shall not be made in a listed debt security if issuer of the security has defaulted any of its financial obligations; (j) the fund or trust, as the case may be, shall be managed by the qualified individuals having requisite skills, knowledge and experience in the capital market in order to ensure that, the investment and the interest of the employees’ is protected; (k) the fund or trust, as the case may be, shall develop and maintain appropriate investment policies explaining investment limit, investment avenues and risk appetite including but not limited to business allocation among the brokers. Moreover, the fund or trust, as the case may be, shall invest in liquid securities and shall refrain

from activities including day trading, investment in future markets (except spread transactions) and investment in securities either through borrowing or through leverage.
5. Mandatory submission regarding investments out of fund or trust.- Every
company, constituting a fund or trust, as the case may be, shall, within one month of the close of every six months of the financial year of such fund or trust, as the case may, submit to the Commission financial information of the fund or trust as the case may be, as contained in the Annexure “A” to these regulations duly endorsed by the Chief Executive Officer of the company, in case of fund and by the head of trustees in case of trust.
6. Repeal and saving.- (1). The Employees’ Provident Fund (Investment in Listed
Securities) Rules, 1996, Employees’ Provident Fund (Investment in Listed Securities) Rules, 2016, Notification No. S.R.O. 261(I)/2002 dated the 10 th May, 2002 and Notification No. S.R.O. 537(I)/2004 are hereby repealed. (2) Save as otherwise specifically provided in these regulations, nothing in these regulations shall affect or be deemed to affect anything done, action taken, investigation or proceedings commenced, order made unless withdrawn, conveyance, mortgage deed, document or agreement made, fee directed or paid or accrued, resolution passed, direction given, proceedings taken or instrument executed or issued, under or pursuant to these regulations and any such things, 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 regulations and not inconsistent with any of the provisions of these regulations continue to be in force and have effect as if it were respectively done, taken, commenced, made, directed, passed, given, executed or issued under these regulations. .-..--..

ANNEXURE-A
[see rule 5]
Mandatory disclosures regarding Investments out of Fund or Trust:
Particulars
Audited/Un￾audited Audited
2017 2016
Rs. Rs.
Size of fund or trust-Total Assets Xxx xxx
Cost of Investments out of fund or trust Xxx xxx Fair Value of Investments out of fund or trust Xxx xxx Percentage of Investments out of fund or trust Xx xx Break-up of Cost of Investments out of Fund or Trust:
Year 2017 Year 2016
Particulars Rs. % of investment Rs.
% of invest ment
Investment in Listed Debt Securities xxx xx xxx xx Investment in Listed Equity Securities xxx xx xxx xx Investment in Debt Collective Investment Schemes xxx xx xxx xx Investment in Equity Collective Investment Schemes xxx xx xxx xx Investment in Debt Instruments of Statutory Bodies xxx Investment in Government Securities xxx xx xxx xx Bank Balances xxx xx xxx xx Others xxx xx xxx xx