Islamabad, Dec 27: The Securities and Exchange Commission of Pakistan (SECP) has approved the issuance of Guidelines for Stock Split by Listed Companies, empowering the Pakistan Stock Exchange Limited (PSX) to introduce this financial strategy to the market. The guidelines are designed to promote stock splits as a viable tool for companies with high share prices, helping to improve liquidity and facilitate broader investor participation.
According to SECP, the guidelines offer comprehensive information on the legal, procedural, and financial aspects of stock splits. This includes details on the process flow, real-world case studies, tax and cost implications, and accounting treatments. A stock split involves dividing a company’s existing shares into multiple new shares, which reduces the share price while increasing the total number of shares outstanding. This strategy helps improve liquidity, facilitates more accurate price discovery, and broadens access for retail investors, making shares more affordable and better priced for the market.
In turn, stock splits enable companies to attract further investments through secondary public offerings or the issuance of additional shares, making it easier to tap into the capital market for future growth. SECP emphasized that several listed companies in Pakistan currently experience low trading volumes due to high share prices, with some companies reporting annual volumes as low as 10,000 to 20,000 shares. This lack of liquidity can hinder efficient price discovery and limit investor participation in the market.
Globally, stock splits have been a common practice among major corporations, with companies like Amazon, Apple, and Tesla using them to enhance trading volumes and adjust market pricing. In Pakistan, stock splits are permitted under Section 85(1)(c) of the Companies Act, 2017, which allows companies to subdivide their shares through a special resolution. Although only three companies in Pakistan have executed stock splits in recent years, the resulting increase in trading volumes and investor interest highlights the potential benefits of adopting this strategy more widely.
The SECP and PSX have finalized the guidelines following consultations with key stakeholders, including the Central Depository Company (CDC), the Institute of Chartered Accountants of Pakistan (ICAP), and various listed companies. To encourage more companies to consider stock splits, SECP has recommended that PSX conduct awareness sessions and launch a targeted campaign to educate listed companies on the advantages that stock splits can bring to both the companies and Pakistan’s capital market.
