ISLAMABAD: The Competition Commission of Pakistan (CCP) has issued detailed Phase II Review order, undertaken under Section 11 of the Competition Act, 2010, in the matter of integration of Islamabad, Lahore, and Karachi Stock Exchanges, approving the merger while imposing conditions to remedy certain competition concerns.
The order has been issued by a bench comprised of Vadiyya Khalil, Chairperson, Mueen Batlay, Member (Mergers & Acquisitions), Shahzad Ansar, Member (OFT and Advocacy), and Ikramul Haque Qureshi, Member (Cartels and Trade Abuse, and Legal).
In its detailed judgment, the CCP has undertaken a comprehensive competitive analysis of the merger to determine if it substantially lessens competition by creating or strengthening a dominant position. The order provides that the market under scrutiny is the ‘trading platform for the sale, purchase and exchange of listed securities’. It further elaborates that an integral subset of this market is the broker to broker interaction. The commission has taken a two-pronged approach to consider both the horizontal and vertical effects of the merger on the market.
With respect to the vertical effects, the commission has held that until the divestment of 40% of the post-merger Pakistan Stock Exchange’s (PSE) shares to a strategic investor is carried out, the brokers transferring from LSE and ISE remain vulnerable to biased treatment at the hands of KSE shareholders. Another concern the commission has identified is the effect the merger might have on Central Depository Company (CDC) and National Clearing Company Pakistan Limited (NCCPL).
With respect to horizontal effects, the commission has found that the integration of the exchanges will not lead to elimination of an important or effective competitor from the market. The order states that the unification of trading on one platform will instead improve the liquidity of the markets as a whole. In relation to how the integration would affect the listing of companies, the order finds that the companies listed on the LSE and ISE will be deemed listed on PSE upon its creation, without any additional cost or regulatory requirements which would create efficiencies. With regards to listing of new companies, the commission observed that Securities and Exchange Commission of Pakistan (SECP) remains responsible to ensure listing fees are not set arbitrarily and to review any instances of unfair refusal to list a company.
