Over the past several years, the Securities and Exchange Commission of Pakistan (SECP) has introduced a series of reform initiatives aimed at modernising Pakistan’s capital-market framework. These have included digital account-opening mechanisms, risk-based supervision models, e-IPO processes, enhanced disclosure standards and regulatory sandboxes to encourage fintech and capital-market innovation.

While these initiatives reflected institutional recognition of long-standing weaknesses, their real-world impact on market depth, liquidity, and participation has remained limited.

The core challenge has not been the absence of reform activity, but rather the absence of a coherent, market-development-driven strategy. Implemented in isolation and without measurable developmental objectives, these reforms have failed to produce meaningful structural change.

With the new SECP leadership now formally in place, the moment has shifted from reform signalling to outcomes delivery.

Pakistan’s capital and commodities markets, primarily represented by the Pakistan Stock Exchange (PSX) and the Pakistan Mercantile Exchange (PMEX), remain strategically vital to the country’s financial architecture. Yet both continue to face deep-rooted structural distortions that require decisive intervention.

Two structural fault lines undermining PSX and PMEX

Limited market participation and its systemic consequences

Chronic under-participation remains the single most damaging constraint across both equity and commodity markets.

Thin market depth continues to undermine:

• Efficient and credible price discovery

• Liquidity and capital-raising capacity

• Investor confidence and institutional credibility

In several segments, practitioners openly question whether price formation reflects genuine supply-demand dynamics or merely shallow, concentrated trading. When participation is narrow and transactional activity is limited, exchanges struggle to fulfil their fundamental role in capital formation and risk transfer.

A market without broad-based participation risks becoming structurally fragile; vulnerable to volatility, manipulation concerns, and declining investor trust.

In a nutshell, an equity exchange loses its economic relevance when fair price discovery is impaired and capital-raising becomes unviable due to insufficient investor participation. Expanding investor participation must therefore become a core performance benchmark for the new SECP leadership.

Black-market commodity trading and regulatory leakage

The second major structural distortion lies in the continued presence of unregulated and parallel commodity trading channels, particularly affecting PMEX.

Market participants report that:

• Significant trading volumes occur outside the regulated exchange ecosystem

• Retail investors face heightened fraud and counterparty risk

• Certain transactions are routed offshore, contributing to foreign-exchange leakage

This informal parallel market undermines regulatory credibility, weakens exchange liquidity, and erodes investor protection.

Acknowledgment of the problem is no longer sufficient. The credibility of the new SECP leadership will depend on visible, technology-driven, and even-handed enforcement across both commodities and equities.

Without decisive action, regulated exchanges will remain structurally disadvantaged relative to unregulated channels.

From diagnosis to delivery: what SECP must now do

With leadership transition complete, attention must shift to execution. Addressing participation constraints and eliminating illegal parallel trading requires regulatory recalibration and institutional strengthening.

Shift from procedural control to market enablement

For years, stakeholders have argued that SECP’s regulatory culture has leaned toward procedural rigidity rather than developmental facilitation.

The new leadership must redefine regulatory success to include measurable improvements in:

• Active investor growth

• Liquidity expansion

• Market competitiveness

Regulation must protect markets, but it must also enable them.

Remove friction in account opening and KYC

Onboarding remains one of the most immediate barriers to participation.

Despite partial digitization, the process is often cumbersome, repetitive, and fragmented.

A clear inefficiency illustrates the problem:

Every investor opening a brokerage account is required to complete full KYC procedures even though the same investor has already undergone comprehensive KYC and AML verification when opening a bank account under stringent regulatory standards. The duplication of verified information creates unnecessary delays, increases compliance costs, and discourages new entrants without delivering proportionate risk mitigation benefits.

The SECP must therefore:

• Implement fully digital, paperless onboarding

• Introduce unified verification mechanisms

• Recognize or integrate bank-verified KYC to eliminate duplication

• Establish rapid account activation timelines

• Align onboarding standards with international best practice

Reducing entry friction is one of the fastest ways to improve market depth.

Rationalize compliance without weakening oversight

Excessive reporting layers and procedural redundancies impose hidden economic costs.

Industry feedback consistently highlights:

• Disproportionate time spent on low-impact compliance

• Reduced innovation capacity

• Regulatory hesitation around product development

The objective must be risk-based, proportional supervision; maintaining investor protection while eliminating operational drag that stifles growth.

Strengthen enforcement against illegal market activity

To counter black-market commodity trading and offshore routing, SECP must adopt:

• Technology-enabled surveillance systems

• Data-driven detection of irregular flows

• Uniform enforcement across equities and commodities

• Swift, visible action against fraudulent operators

Enforcement credibility will be central to restoring trust in regulated exchanges.

Close the institutional capacity gap

None of these reforms can succeed without strengthening SECP’s own internal capabilities.

The regulatory complexity of modern financial markets requires:

• Upgraded technical and supervisory expertise

• Recruitment and retention of specialized market professionals

• Deployment of advanced surveillance and risk-monitoring tools

• Strengthened policy research and analytical capacity

• Dedicated market-development functions within the institution

Institutional capability is not a secondary issue; it is the foundation upon which effective regulation rests.

Introduce clear, market-development KPIs

Regulatory performance must be measured not only by enforcement actions, but by market outcomes.

Annual performance benchmarks should include:

• Growth in active investor accounts

• Reduction in onboarding timelines

• Increased product diversity

• Improved liquidity and turnover ratios

• Expansion in digital participation

Leadership accountability must extend beyond procedural compliance to measurable development outcomes.

Conclusion: A defining moment for SECP

With new leadership firmly in place, Pakistan’s financial markets have entered a decisive phase.

The two central structural failures are clear:

Chronic under-participation weakening market depth and price discovery

Chronic under-participation weakening market depth and price discovery

Persistent black-market commodity trading undermining regulatory credibility

Persistent black-market commodity trading undermining regulatory credibility

Addressing these issues requires more than incremental adjustments. It demands a regulator that is:

• Development-oriented rather than defensive

• Digitally enabled rather than paper-bound

• Proactive rather than reactive

• Transparent and predictable

• Accountable through measurable market-development benchmarks

If the current leadership moves decisively beyond reform rhetoric and delivers structural outcomes, Pakistan’s capital and commodities markets can finally achieve the depth, credibility, and vibrancy long promised but not yet realized.

Copyright Business Recorder, 2026

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