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IFMP Pakistan's Market Regulations Certification (PMR), Pakistan study materials
IFMP Pakistan's Market Regulations Certification (PMR), Pakistan study resources

IFMP Pakistan's Market Regulations Certification (PMR), Pakistan practice questions

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Question 1Pakistan's Market Regulations

Under the Securities Act, 2015, which body is the principal regulator of Pakistan's securities market and the apex regulator of market intermediaries?

  1. The Securities and Exchange Commission of Pakistan Correct answer.
  2. The Pakistan Stock Exchange Limited
  3. The Competition Commission of Pakistan
  4. The State Bank of Pakistan

Explanation

The Securities Act, 2015 reconstituted the Securities and Exchange Commission of Pakistan as the apex regulator for the securities market, including licensing and supervision of intermediaries. The State Bank regulates banking, the Exchange operates the trading platform, and the Competition Commission handles competition matters.

Question 2Pakistan's Market Regulations

Which licence category under the Securities Act, 2015 authorises a firm to execute trades on the exchange on behalf of clients?

  1. Underwriter
  2. Trading and self-clearing
  3. Broker Correct answer.
  4. Market maker

Explanation

The Act's licensing framework distinguishes broker, agent, underwriter, portfolio manager, consultant and other categories; the broker licence is the one that permits dealing in securities on behalf of clients on the exchange. Self-clearing concerns settlement, market making concerns liquidity provision, and underwriting concerns subscription of issues.

Question 3Pakistan's Market Regulations

A listed company wants to buy back its own shares on the exchange. Which regulatory route governs this transaction?

  1. The Companies Act, 2017 buy-back provisions read with SECP share buy-back regulations Correct answer.
  2. The Central Depositories Act, 1997
  3. The Modaraba Companies Ordinance, 1980
  4. The Takeovers Ordinance, 2001

Explanation

Share buy-backs by listed companies are governed by the Companies Act, 2017 read with the SECP's dedicated buy-back regulations, which set pricing, disclosure and timing conditions. The Takeovers Ordinance addresses change of control, the Central Depositories Act governs custody and settlement, and the Modaraba Ordinance governs modarabas.

Question 4Pakistan's Market Regulations

What is the standard settlement cycle for cash-market trades on the Pakistan Stock Exchange?

  1. T+5
  2. T+1
  3. Same day (T+0)
  4. T+2 Correct answer.

Explanation

The Pakistan Stock Exchange operates a T+2 rolling settlement cycle for cash-settled equity trades, meaning obligations are discharged two business days after execution. T+0 and T+1 are faster cycles not applied to the regular market, and T+5 is a legacy cycle no longer used.

Question 5Pakistan's Market Regulations

Which document must a company publish before a public offer of shares so that investors can assess the issue?

  1. A memorandum of association
  2. A share pledge agreement
  3. A prospectus Correct answer.
  4. A trust deed

Explanation

A public offer of securities requires a prospectus approved by the SECP, containing the disclosures needed for an informed investment decision. A trust deed is used for debt or collective investment schemes, the memorandum is a constitutional document, and a pledge agreement secures financing.

Question 6Pakistan's Market Regulations

A company's articles reserve a pre-emptive right for existing shareholders. What does this entitle them to do?

  1. Subscribe to new shares in proportion to their existing holding before outsiders Correct answer.
  2. Appoint a director regardless of shareholding
  3. Convert preference shares into debt
  4. Receive a fixed dividend before ordinary shareholders

Explanation

A pre-emptive right allows existing shareholders to subscribe to a new issue in proportion to their current holdings, protecting them from dilution. It is not a dividend preference, a board appointment right, or a conversion mechanism.

Question 7Pakistan's Market Regulations

Under the Listed Companies (Code of Corporate Governance) Regulations, what is the minimum number of independent directors on the board of a listed company?

  1. At least two or one-third of the board, whichever is higher Correct answer.
  2. At least half of the board
  3. None, independence is voluntary
  4. At least one

Explanation

The Code of Corporate Governance requires listed companies to have independent directors equal to at least two or one-third of the total board members, whichever is higher. A single independent director is insufficient, half the board is not mandated, and independence is not optional.

Question 8Pakistan's Market Regulations

Which committee of a listed company's board is responsible for nominating directors and reviewing board composition?

  1. The procurement committee
  2. The audit committee
  3. The human resource and remuneration committee Correct answer.
  4. The risk management committee

Explanation

The Code of Corporate Governance assigns nomination and remuneration matters, including board composition review, to the human resource and remuneration committee. The audit committee oversees financial reporting and internal controls, while risk and procurement committees handle other functions.

Question 9Pakistan's Market Regulations

A listed company's audit committee must be chaired by which type of director?

  1. An independent director Correct answer.
  2. The company secretary
  3. The chief financial officer
  4. The chief executive officer

Explanation

The Code of Corporate Governance requires the audit committee to be chaired by an independent director and to be composed predominantly of non-executive directors. The CEO, company secretary and CFO are executives or officers and cannot chair it.

Question 10Pakistan's Market Regulations

Which law governs the licensing and supervision of non-bank financial companies such as investment banks and leasing companies in Pakistan?

  1. The Securities Act, 2015
  2. The Banking Companies Ordinance, 1962
  3. The Insurance Ordinance, 2000
  4. The Non-Bank Financial Companies (Establishment and Regulation) Rules, 2003 Correct answer.

Explanation

Non-bank financial companies are established and regulated under the NBFI Rules, 2003, administered by the SECP. The Securities Act governs market intermediaries and exchanges, the Banking Companies Ordinance governs banks, and the Insurance Ordinance governs insurers.

Question 11Pakistan's Market Regulations

A collective investment scheme in Pakistan is launched under which regulatory instrument?

  1. The Companies Act, 2017
  2. The Securities Act, 2015
  3. The Modaraba Companies Ordinance, 1980
  4. The Non-Bank Financial Companies Rules, 2003 Correct answer.

Explanation

Collective investment schemes, including mutual funds, are regulated under the NBFI Rules, 2003 and the associated SECP circulars and directives. The Companies Act governs corporate entities, the Securities Act governs market conduct, and the Modaraba Ordinance governs modarabas.

Question 12Pakistan's Market Regulations

Which body performs the front-line regulatory role of monitoring trading conduct and enforcing exchange regulations on the Pakistan Stock Exchange?

  1. The State Bank of Pakistan
  2. The Federal Board of Revenue
  3. The SECP
  4. The Pakistan Stock Exchange Limited Correct answer.

Explanation

The Exchange itself acts as front-line regulator, monitoring trading and enforcing its regulations under SECP oversight. The SECP is the apex regulator, the State Bank handles banking, and the FBR handles taxation.

Question 13Pakistan's Market Regulations

A broker accepts client orders but routes them to another broker for execution. Which licence category best describes this activity?

  1. Agent Correct answer.
  2. Self-clearing member
  3. Market maker
  4. Underwriter

Explanation

An agent licence permits a firm to solicit and route client orders without executing directly on the exchange. Market making involves quoting two-way prices, underwriting involves subscribing to issues, and self-clearing concerns settlement.

Question 14Pakistan's Market Regulations

What is the primary purpose of the Central Depositories Act, 1997 in Pakistan's market infrastructure?

  1. To govern takeovers of listed companies
  2. To establish the legal framework for electronic book-entry settlement of securities Correct answer.
  3. To regulate the issuance of prospectuses
  4. To license insurance companies

Explanation

The Central Depositories Act, 1997 provides the legal basis for central depositories and electronic book-entry holding and transfer of securities, replacing physical certificates. Prospectus regulation, takeovers and insurance licensing fall under other statutes.

Question 15Pakistan's Market Regulations

Under the Takeovers Ordinance, 2001, what triggers a mandatory public offer of at least 50 percent of a listed company's shares?

  1. Acquiring 75 percent of the voting shares
  2. Acquiring 25 percent of the voting shares Correct answer.
  3. Acquiring 10 percent of the voting shares
  4. Acquiring 51 percent of the voting shares

Explanation

The Takeovers Ordinance requires a mandatory tender offer when a person acquires 25 percent or more of the voting shares of a listed company, or otherwise acquires control. Ten percent is below the threshold, while 51 and 75 percent are above it and do not define the trigger.

Question 16Pakistan's Market Regulations

A listed company's financial statements must be published in which form to satisfy the Code of Corporate Governance?

  1. Only in the annual report to shareholders
  2. Only to the stock exchange
  3. In a newspaper and on the company's website, together with the annual report Correct answer.
  4. Only to the SECP in confidence

Explanation

The Code requires listed companies to publish financial statements in a widely circulated newspaper and on their website, in addition to providing the annual report. Confidential filing only with the SECP, or only with the exchange, does not meet the public disclosure requirement.

Question 17Pakistan's Market Regulations

What is the role of the SECP's Panel of Auditors in relation to listed companies?

  1. To maintain a list of auditors eligible to audit listed companies Correct answer.
  2. To set tax rates for listed companies
  3. To conduct internal audits of the SECP
  4. To approve share buy-backs

Explanation

The SECP maintains a Panel of Auditors listing firms eligible to audit listed companies, and listed companies must appoint auditors from this panel. The panel does not audit the SECP, set tax rates, or approve buy-backs.

Question 18Pakistan's Market Regulations

Which statement best describes the SECP's power to issue directives to market participants?

  1. Directives require prior approval of the Federal Board of Revenue
  2. Directives are advisory and have no legal effect
  3. Directives may be issued to implement the securities law and are binding on licensed persons Correct answer.
  4. Directives may only be issued by the State Bank

Explanation

The SECP may issue binding directives to licensed persons and market institutions to implement the Securities Act and protect investors. They are not merely advisory, are not issued by the State Bank for securities matters, and do not require FBR approval.

Question 19Pakistan's Market Regulations

A listed company fails to hold its annual general meeting within the statutory period. Which consequence follows under the Companies Act, 2017?

  1. The company is automatically dissolved
  2. The company's shares are delisted immediately
  3. The board is automatically replaced by the SECP
  4. The company and its officers may be liable to penalties, and the SECP may convene the meeting Correct answer.

Explanation

Failure to hold the AGM within the prescribed period exposes the company and defaulting officers to penalties, and the SECP may convene the meeting on application or on its own initiative. Automatic dissolution, immediate delisting, and SECP replacement of the board are not the statutory consequences.

Question 20Pakistan's Market Regulations

What is the principal function of a central depository in Pakistan's market?

  1. To hold securities in electronic form and effect book-entry transfers Correct answer.
  2. To approve prospectuses
  3. To conduct market surveillance
  4. To set the policy interest rate

Explanation

A central depository holds securities electronically and effects transfers by book entry, eliminating physical certificates. Interest-rate policy belongs to the State Bank, prospectus approval to the SECP, and surveillance to the exchange.

Question 21Pakistan's Market Regulations

A company's articles contain a transfer restriction on shares. Which statement is correct under the Companies Act, 2017?

  1. Transfer restrictions apply only to preference shares
  2. Transfer restrictions in the articles are enforceable against shareholders Correct answer.
  3. Only the SECP may impose transfer restrictions
  4. Transfer restrictions are void because shares are freely transferable

Explanation

The Companies Act permits a company's articles to restrict the transfer of shares, and such restrictions bind shareholders. They are not automatically void, are not imposed only by the SECP, and are not limited to preference shares.

Question 22Pakistan's Market Regulations

Which body is responsible for approving the listing of securities on the Pakistan Stock Exchange?

  1. The Pakistan Stock Exchange Limited Correct answer.
  2. The SECP
  3. The State Bank of Pakistan
  4. The Federal Board of Revenue

Explanation

The Exchange's listing committee approves applications for listing, subject to SECP oversight and the applicable listing regulations. The State Bank, SECP and FBR do not approve individual listings directly.

Question 23Pakistan's Market Regulations

A listed company wishes to issue new shares to a strategic investor at a price below market. What regulatory approval is generally required?

  1. No approval is required if the board resolves
  2. Approval by the State Bank only
  3. Approval by the SECP and the exchange under the applicable issue regulations Correct answer.
  4. Approval by the Competition Commission only

Explanation

Issuance of shares at a discount to market, or to a specific investor, requires compliance with the SECP's issue regulations and exchange approval, often including shareholder approval. State Bank approval, board resolution alone, or Competition Commission approval do not satisfy this requirement.

Question 24Pakistan's Market Regulations

Which requirement applies to a listed company's chief executive officer and chairman under the Code of Corporate Governance?

  1. The same person must hold both offices
  2. Both offices must be held by the largest shareholder
  3. The offices must be held by different persons Correct answer.
  4. Both offices must be held by independent directors

Explanation

The Code requires the positions of chairman and CEO to be held by different individuals to preserve board independence and checks on management. The same person cannot hold both, and neither office is required to be held by an independent director or the largest shareholder.

Question 25Pakistan's Market Regulations

What is the purpose of the SECP's investor protection and complaint-handling framework for market intermediaries?

  1. To set the exchange's trading hours
  2. To replace the courts in all disputes
  3. To guarantee investment returns to investors
  4. To provide a channel for investors to seek redress against licensed persons and to enforce conduct standards Correct answer.

Explanation

The SECP's complaint-handling framework allows investors to seek redress against licensed intermediaries and enforces conduct standards. It does not guarantee returns, does not displace the courts, and does not set trading hours.

Question 26Pakistan's Market Regulations

Under the Securities Act, 2015, which body is the principal regulator of Pakistan's securities market and securities exchanges?

  1. The Pakistan Stock Exchange's board of directors
  2. The Securities and Exchange Commission of Pakistan Correct answer.
  3. The Ministry of Commerce
  4. The State Bank of Pakistan

Explanation

The Securities Act, 2015 establishes the SECP as the apex regulator of the securities market, including licensing and supervision of exchanges and intermediaries. The State Bank regulates banking and monetary matters, while the exchange's board manages its own affairs under SECP oversight.

Question 27Pakistan's Market Regulations

A company seeks to offer its shares to the public for the first time and have them traded on the Pakistan Stock Exchange. Which document must it prepare and get approved under the Securities Act, 2015?

  1. A memorandum of association
  2. A scheme of arrangement
  3. A trust deed
  4. A prospectus Correct answer.

Explanation

A public offer of securities requires an approved prospectus containing the disclosures prescribed under the Securities Act, 2015 and SECP rules, so investors can make an informed decision. A trust deed relates to collective investment schemes, and a scheme of arrangement concerns corporate restructuring.

Question 28Pakistan's Market Regulations

Which regulator licenses and supervises securities brokers and underwriters operating in Pakistan's capital market?

  1. The Pakistan Institute of Corporate Governance
  2. The Securities and Exchange Commission of Pakistan Correct answer.
  3. The Pakistan Stock Exchange alone
  4. The State Bank of Pakistan

Explanation

Securities brokers and underwriters are licensed and supervised by the SECP under the Securities Act, 2015 and the associated intermediary regulations. The exchange performs front-line monitoring but does not grant the statutory licence itself.

Question 29Pakistan's Market Regulations

What is the principal objective of Pakistan's insider trading prohibitions under the Securities Act, 2015?

  1. To require all trades to be settled on a cash-only basis
  2. To prevent dealing in securities while in possession of material, non-public information Correct answer.
  3. To cap the maximum shareholding of any single investor
  4. To restrict share purchases by foreign investors

Explanation

Insider trading rules prohibit persons connected with an issuer from dealing or tipping on material non-public information, preserving market fairness and price integrity. The rules do not cap shareholdings, restrict foreign investment, or dictate settlement mode.

Question 30Pakistan's Market Regulations

A listed company is required to disclose price-sensitive information to the exchange promptly. What is the regulatory rationale for this obligation?

  1. To ensure all investors have equal and timely access to information affecting prices Correct answer.
  2. To allow the company to advertise its products to the public
  3. To satisfy bank lending covenants
  4. To enable the exchange to collect additional listing fees

Explanation

Prompt disclosure of material information prevents information asymmetry, so that no group of investors can trade on undisclosed facts. This supports fair and orderly trading and underpins investor confidence in the market.

Question 31Pakistan's Market Regulations

Which authority administers the Central Depositories Act, 1997 and the associated depository regulations in Pakistan?

  1. The State Bank of Pakistan
  2. The Securities and Exchange Commission of Pakistan Correct answer.
  3. The Pakistan Mercantile Exchange
  4. The National Clearing Company

Explanation

The SECP administers the Central Depositories Act, 1997 and licenses the central depository, setting the regulatory framework for book-entry settlement. The National Clearing Company operates clearing and settlement but does not administer the Act.

Question 32Pakistan's Market Regulations

Under Pakistan's listed company regime, which body must a listed company constitute to oversee financial reporting and internal controls?

  1. A remuneration committee
  2. A risk management committee
  3. A shareholders' grievance committee
  4. An audit committee of the board Correct answer.

Explanation

Listed companies must constitute a board audit committee responsible for oversight of financial reporting, internal controls and external audit. Remuneration and risk committees may exist but do not carry this financial reporting oversight role.

Question 33Pakistan's Market Regulations

Which body in Pakistan is responsible for investigating and prosecuting market misconduct such as manipulation and insider dealing?

  1. The Federal Board of Revenue
  2. The Securities and Exchange Commission of Pakistan Correct answer.
  3. The Pakistan Stock Exchange's listing department
  4. The Competition Commission of Pakistan

Explanation

The SECP has statutory powers to investigate, issue directions and take enforcement action against market misconduct under the Securities Act, 2015. The exchange's listing department handles listing compliance, not criminal market abuse investigations.

Question 34Pakistan's Market Regulations

A listed company proposes to issue new shares to a strategic investor at a price below the prevailing market price. Which procedure does the regulatory framework generally require?

  1. Approval by shareholders in general meeting together with SECP and exchange compliance requirements Correct answer.
  2. Approval by the company's internal audit committee only
  3. Approval by the company's external auditor
  4. Approval by the State Bank of Pakistan

Explanation

Issuing shares at a discount to market dilutes existing holders, so the framework requires shareholder approval in general meeting plus compliance with SECP and exchange requirements, including disclosure and pricing rules. Internal committees and the auditor have no power to approve such an issue.

Question 35Pakistan's Market Regulations

A listed company's board is considering appointing a person who is a close relative of the chief executive as an independent director. How should this be treated under Pakistan's corporate governance requirements?

  1. It is permitted only if the State Bank approves the appointment
  2. It is likely to compromise independence and should be assessed against the prescribed independence criteria Correct answer.
  3. It is permitted because family ties are irrelevant to independence
  4. It is automatically permitted if the person holds no shares

Explanation

Independence criteria under the listed companies governance regulations exclude persons with close family or business relationships with the chief executive or major shareholders. Such an appointment should be assessed against those criteria and is generally not treated as independent.

Question 36Pakistan's Market Regulations

A company listed on the Pakistan Stock Exchange wants to buy back its own shares from the market. What is the key regulatory condition for such a buy-back?

  1. It must comply with the prescribed buy-back procedure, including shareholder approval and SECP and exchange requirements Correct answer.
  2. It may proceed at the board's discretion without any disclosure
  3. It is prohibited absolutely for all listed companies
  4. It requires only the auditor's consent

Explanation

Share buy-backs by listed companies are permitted only through the prescribed procedure under the Companies Act and SECP regulations, including shareholder authorization, disclosure and limits on price and volume. They are regulated rather than absolutely prohibited.

Question 37Pakistan's Market Regulations

A shareholder of a listed company believes the company's annual report omits a material related-party transaction. Which avenue is most appropriate under Pakistan's regulatory framework?

  1. Directly suing the exchange for compensation
  2. Ignoring the omission because related-party disclosure is voluntary
  3. Filing a complaint with the SECP and raising the matter at the general meeting Correct answer.
  4. Requesting the State Bank to audit the company

Explanation

Related-party disclosures are mandatory, and investors may complain to the SECP and use shareholder rights at the general meeting to challenge inadequate disclosure. The exchange is not liable in damages for an issuer's disclosure failure, and the State Bank has no audit role here.

Question 38Pakistan's Market Regulations

A broker wishes to expand into margin financing for clients. Which regulatory source primarily governs this activity in Pakistan?

  1. The Securities Act, 2015 read with SECP margin financing and securities lending regulations Correct answer.
  2. The Banking Companies Ordinance, 1962
  3. The Companies Act, 2017 alone
  4. The Central Depositories Act, 1997 alone

Explanation

Margin financing and securities lending by securities brokers are governed by the Securities Act, 2015 together with the SECP's dedicated margin financing and securities lending regulations. The Banking Companies Ordinance governs banks, not securities brokers' margin business.

Question 39Pakistan's Market Regulations

A listed company's chief executive also serves as chairman of the board. What does Pakistan's listed company governance framework generally require regarding these roles?

  1. The roles must be held by different persons
  2. The roles may be combined only if the board explains and discloses the reasons Correct answer.
  3. The roles may be combined only with State Bank approval
  4. The roles must always be combined

Explanation

The governance regulations require separation of the chairman and chief executive roles as the norm, with combination permitted only in defined circumstances supported by board justification and disclosure. The State Bank has no approval role for listed company board positions.

Question 40Pakistan's Market Regulations

An investor holds shares in a company that is the subject of a mandatory tender offer under the Takeovers Ordinance, 2001. What protection does the framework give the investor?

  1. The investor must exchange shares for bonds
  2. The investor is barred from selling until the offer closes
  3. The investor must sell at whatever price the acquirer sets
  4. The investor is entitled to participate on the terms of the offer, which must comply with the prescribed pricing and procedural rules Correct answer.

Explanation

The Takeovers Ordinance requires a mandatory offer to be made on terms meeting prescribed pricing and procedural standards, giving target shareholders a fair opportunity to exit. Acquirers cannot unilaterally dictate terms outside those rules.

Question 41Pakistan's Market Regulations

A listed company's quarterly accounts are delayed beyond the prescribed period. Which regulatory consequence is most consistent with Pakistan's listed company regime?

  1. The company automatically loses its incorporation
  2. The SECP and exchange may take enforcement action, including penalties and monitoring of the company Correct answer.
  3. The State Bank assumes management of the company
  4. The auditor is personally liable for the delay

Explanation

Failure to publish periodic financial results within the prescribed timelines exposes the company to SECP and exchange enforcement, including penalties and compliance monitoring. It does not dissolve the company or transfer management to another regulator.

Question 42Pakistan's Market Regulations

What is the function of the SECP's complaint-handling mechanism for investors against market intermediaries?

  1. To guarantee investors a profit on their trades
  2. To set the prices at which securities trade
  3. To replace the courts entirely for all commercial disputes
  4. To provide a channel for resolving investor grievances and disciplining non-compliant intermediaries Correct answer.

Explanation

The complaint-handling framework gives investors a route to seek redress against intermediaries and enables the SECP to investigate and discipline misconduct. It does not guarantee investment returns, replace the courts, or set market prices.

Question 43Pakistan's Market Regulations

A listed company plans to enter into a transaction with a company owned by its chief executive. How should this be handled under Pakistan's related-party rules?

  1. It may proceed without disclosure because it is a private arrangement
  2. It requires only the chief executive's written consent
  3. It is prohibited in all circumstances
  4. It must be disclosed, approved through the prescribed process with the interested director abstaining, and reported to the exchange Correct answer.

Explanation

Related-party transactions must be disclosed and approved under the prescribed governance process, with interested directors abstaining from voting, and material transactions reported to the exchange. They are regulated, not absolutely prohibited.

Question 44Pakistan's Market Regulations

A securities broker becomes insolvent and cannot return client assets. Which regulatory arrangement is designed to address such investor losses in Pakistan?

  1. The deposit insurance scheme of the State Bank
  2. The investor protection and compensation framework administered under SECP regulation Correct answer.
  3. The exchange's listing fee reserve
  4. The company's share premium account

Explanation

Pakistan's regulatory framework includes investor protection arrangements, including compensation mechanisms, to address losses arising from intermediary default in defined circumstances. Deposit insurance covers bank deposits, not securities client assets.

Question 45Pakistan's Market Regulations

A person acquires shares that take their voting rights in a listed company above the threshold prescribed in the Takeovers Ordinance, 2001. What obligation arises?

  1. The person must convert the shares into preference shares
  2. The person must immediately sell the excess shares
  3. The person must resign from the board
  4. The person must make a mandatory public offer for the prescribed percentage of the company's shares Correct answer.

Explanation

Crossing the prescribed shareholding or voting threshold triggers a mandatory public offer under the Takeovers Ordinance, 2001, to give remaining shareholders an exit at a fair price. The acquirer is not required to sell down or convert its shares.

Question 46Pakistan's Market Regulations

Which statement best describes the legal effect of listing a security on the Pakistan Stock Exchange?

  1. It converts the security into a government-guaranteed instrument
  2. It guarantees a minimum trading price for the security
  3. It exempts the issuer from SECP regulation
  4. It admits the security to trading on the exchange, subject to continuing listing and disclosure obligations Correct answer.

Explanation

Listing admits securities to trading on the exchange and imposes continuing obligations such as disclosure, reporting and governance standards. It does not create a government guarantee, exempt the issuer from SECP oversight, or guarantee prices.

Question 47Pakistan's Market Regulations

A listed company's board wants to change the company's external auditors before the end of their term. What does the governance framework generally require?

  1. Audit committee recommendation and shareholder approval in general meeting, with the change disclosed Correct answer.
  2. No process is required for auditor changes
  3. Approval by the State Bank
  4. Only the chief executive's decision is needed

Explanation

Changes to a listed company's external auditor require audit committee recommendation and shareholder approval in general meeting, together with disclosure of the reasons. The decision cannot rest with the chief executive alone, and the State Bank has no role.

Question 48Pakistan's Market Regulations

An issuer discovers that a previously published financial statement contained a material error. What is the most appropriate regulatory response under Pakistan's disclosure regime?

  1. Ask the auditor to withdraw the audit report without any public notice
  2. Quietly amend internal records without informing the market
  3. Wait until the next annual report to mention it in passing
  4. Restate and publish corrected financial information promptly with disclosure to the exchange and SECP Correct answer.

Explanation

Material errors require prompt correction and public disclosure so that the market is not misled by previously published figures. Silent correction or delayed mention defeats the purpose of continuous disclosure and may itself constitute a breach.

Question 49Pakistan's Market Regulations

A listed company wishes to undertake a material transaction outside its ordinary course of business. Which combination of steps best reflects Pakistan's regulatory expectations?

  1. Auditor approval alone
  2. Board approval alone, with disclosure only if a journalist asks
  3. State Bank approval alone
  4. Board and, where required, shareholder approval, plus immediate disclosure to the exchange Correct answer.

Explanation

Material transactions require the appropriate level of internal approval, shareholder approval where thresholds are met, and immediate disclosure to the exchange so the market can price the information. Auditor or State Bank approval alone does not satisfy these requirements.

Question 50Pakistan's Market Regulations

A group of shareholders holding a significant minority stake wants to remove a director before the end of his term. Which route is available under Pakistan's company law framework?

  1. A decision of the audit committee
  2. A direction of the exchange's listing department
  3. A written request to the SECP to remove the director
  4. A resolution passed by shareholders in general meeting in accordance with the Companies Act, 2017 and the articles Correct answer.

Explanation

Shareholders may remove a director by resolution in general meeting under the Companies Act, 2017, subject to the notice and procedural requirements in the articles. The SECP and the exchange do not remove directors of a company.