Securities and Exchange Commission of Pakistan (SECP) has relaxed the rules about brokers checking the qualifications of accredited investors for investing in companies listed on the Growth Enterprise Market (GEM) board.
What is the Growth Enterprise Market (GEM) board?
In November 2021, the GEM board was launched as a separate category of the Pakistan Stock Exchange (PSX).
This is where companies that do not meet the direct listing requirements of the PSX can list their companies, a.k.a, go for an IPO.
A listing on the GEM board is restricted to startups and other growth companies whose investment and liquidity risks are higher than mature companies listed on PSX.
And investors have to be accredited to invest in GEM-listed companies—more on that below.
Previously: An investor had to have net assets of Rs. 5 million to invest in GEM-listed companies.
They also had to submit a deceleration that stated they understood the risks of investing in the GEM board and had net assets of at least Rs. 5 million. Later, the broker would verify whether the investor has Rs. 5 million net assets.
What Changed: Assets have replaced ‘net assets’ as the requirement. And brokers will no longer need to verify investor self-decelerations.
Finance 101: Net assets or net worth is assets minus liabilities. In other words, how much are your assets worth once all the debt to accrue the assets are paid off.
Instead of net worth, you can simply show assets of Rs. 5 million assets.
Effective: April 1, 2022.
You should know: Currently, two companies are on the GEM board. Unfortunately, there has been a lackluster trading volume since they were listed.
Brokers believe this is because trading was restricted to accredited investors with Rs. 5 million or more in net assets.
Big picture: At least five more companies have applied to be listed on the GEM board. Coeus Solutions was going to go public but delayed it until after Eid.
As more investors flock to the GEM board, trading volume will increase, resulting in a steady pipeline of companies seeking to go public.