Pakistan’s securities regulator expands digitization of unlisted firms’ shares

Pakistan’s securities regulator has launched the second phase of a nationwide initiative to fully digitize physical share certificates of unlisted companies, in a move aimed at modernizing the corporate framework and strengthening investor protection.

The Securities and Exchange Commission of Pakistan (SECP) has said that documentary share certificates of already registered unlisted companies will be converted into electronic, book-entry form through the Central Depository System (CDS), managed by the Central Depository Company.

The regulator described the initiative as a significant step toward enhancing transparency, improving ease of doing business and safeguarding investors.

Under the new framework, physical share certificates that reflect ownership in unlisted companies will be transferred into electronic form. The SECP said the move would reduce risks associated with paper-based certificates, including loss, theft, forgery and damage.

Currently, a large number of ownership disputes involving unlisted companies’ shares are pending in courts, according to the regulator.

By converting shares into electronic form, ownership records will become secure, transparent and tamper-proof, significantly reducing fraudulent transfers and related litigation, the SECP said.

Electronic shares will also lower administrative costs for companies and allow faster and safer transfers, with quicker settlement and real-time availability of shareholding records. Book-entry shares may also be used as collateral to obtain bank financing, the regulator added.

The SECP said that for unlisted companies still holding physical shares, conversion into electronic form will now be linked to any share transaction. Such companies must convert their shares into book-entry form at least 30 days before undertaking any share transfer, allotment or other transaction.

After conversion, all future transfers, allotments and other share-related transactions must be conducted exclusively through the Central Depository System. Going forward, it will be mandatory for all shareholders to hold their shares in electronic form.

The regulator has already made it compulsory for all newly incorporated unlisted companies to issue shares only in electronic form, rendering physical share certificates unacceptable for new entities. Subscribers at the time of incorporation are required to maintain their shares in the CDS.

A formal notification governing the conversion of shares of already registered unlisted companies into book-entry form is expected to be issued shortly. Under the proposed framework, physical shares must be digitized before any transfer, allotment, rights issue, bonus issue, buyback or change in shareholding.

The SECP said the phased approach will allow older companies to continue routine operations while gradually transitioning to a fully digital system.

The regulator has also approved a comprehensive procedure for admission into the CDS, outlining eligibility criteria, documentation requirements, verification procedures and applicable fees to ensure that the transition process is secure, structured and efficient.