Digitization of Physical Shares for Unlisted Companies

SECP Mandates Digitization of Physical Shares for Unlisted Companies in Pakistan

Islamabad / Karachi: The Securities and Exchange Commission of Pakistan (SECP) has taken a major regulatory step by requiring all non-listed (unlisted) companies to convert their physical share certificates into electronic form, marking a significant move to modernize Pakistan’s corporate governance and enhance market transparency.

Under the new regulatory framework, which is part of SECP’s ongoing reforms to digitize corporate records, unlisted companies holding physical shares must convert these into book-entry electronic shares maintained through The Central Depository System (CDS), which is managed by the Central Depository Company (CDC). Once converted, all share transactions—including transfers, allotments, rights issues, bonus issues, buybacks, and changes in shareholding—must be conducted digitally.

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Why the Shift?

Traditionally, many unlisted companies in Pakistan have relied on paper-based share certificates, which are vulnerable to loss, damage, theft, and forgery. According to SECP, this has contributed to numerous ownership disputes and legal cases pending before courts. The shift to electronic shares aims to eliminate these risks by creating secure, tamper-proof, and accurate ownership records.

Benefits of Electronic Shares

SECP and market observers highlight several benefits of the digitization:

• Enhanced Security: Book-entry electronic shares reduce the risk of fraudulent transfers and certificate forgery.

• Faster Transactions: Digital systems allow quicker processing and settlement of share transfers.

• Lower Administrative Costs: Reduced paperwork and streamlined compliance procedures.

• Access to Credit: Electronic shares can be pledged as collateral for bank financing, potentially improving access to loans.

• Improved Governance: Real-time ownership records will strengthen regulatory oversight and investor protection.

Transition Path and Requirements

SECP has already mandated that newly registered unlisted companies issue shares only in digital form. Under the latest phase of reforms, legacy unlisted firms must convert existing physical share certificates before undertaking any future share transactions. A formal notification from SECP outlining timelines, documentation procedures, verification requirements, and applicable tariffs is expected soon.

The phased approach is designed to allow companies to transition smoothly without disrupting their ongoing operations. SECP officials describe the reform as a central step toward aligning Pakistan’s corporate sector with international best practices.

Source Links

• SECP to convert physical shares of non-listed companies to electronic form – Mettis Global News Read article

• SECP decides to convert physical shares of unlisted companies to digital form – ProPakistani Read article

• Move to digitise unlisted shares – Dawn (detailed reform overview) Read article

• SECP approves full digitization of share ownership for unlisted companies – Business Recorder Read article

• Urdu coverage of SECP’s digitization move – APP via urdu.app.com.pk Read article

• The News report on share digitization requirements – thenews.pk Read article