ISLAMABAD: In line with its efforts to strengthen the capital market and as part of subsidiary legislation under the Securities Act, 2015, the Securities and Exchange Commission of Pakistan (SECP) has approved the Clearing Houses (Licensing and Operations) Regulations, 2016. The bill focuses on matters relating to licensing, minimum financial resources, duties and obligations, audit and accounts, appointment and conduct of directors and management, fit and proper criteria for directors and management, and manner of outsourcing of important functions for the clearing houses For protection of investors’ interest and to boost investor confidence in the market, the regulations also include establishment of a fund by the clearing house to guarantee settlements of trades executed at a securities exchange. Under the regulations, initial and ongoing financial resource requirements for a clearing house, based on current and future risk evaluation of the clearing house’s operations, have been prescribed given the critical functions being performed by a clearing house. For good governance, shareholding criteria and shareholding limits have been specified for a clearing houses, besides requiring it to appoint one-third independent directors to its board. Considering that the clearing houses have recently acquired status of a central counter party as per the best international practice, several new requirements have been made applicable to the clearing houses through the regulations to strengthen their new status and to meet their enhanced requirements. This new regulations now binds a clearing house to form a risk committee comprising independent directors, key management personnel and industry experts in order to assist the clearing house in developing risk management policies and procedures. In line with the IOSCO principles, the clearing houses will also be required to appoint chief risk officers with segregated reporting lines for ensuring implementation of risk management policies. Clearing houses worldwide are critical infrastructure institutions for capital markets and it is expected that with the implementation of this comprehensive regulatory framework, clearing houses in Pakistan will be geared towards provision of efficient clearing and settlement services, while ensuring maximum reduction of risks and promoting investor confidence.