KEY POINTS
- All unlisted companies to convert physical share certificates into electronic book-entry form
- Central Depository System to handle all future share transactions
- Digital shares can be used as collateral, improving access to formal finance
ISLAMABAD: Pakistan has approved a sweeping reform to fully digitise share ownership of unlisted companies, replacing paper-based share certificates with an electronic book-entry system in a move aimed at strengthening transparency, investor protection and corporate governance.
The reform, initiated by the Securities and Exchange Commission of Pakistan (SECP), requires existing unlisted companies to transition from physical share certificates to electronic records
The data is maintained through the Central Depository System (CDS), operated by the Central Depository Company (CDC). In many emerging markets, unlisted firms still rely on paper documentation, which can expose investors to risks of loss, forgery and ownership disputes.
Under the new framework, all existing unlisted companies that currently maintain physical shares must convert them into electronic form before undertaking any share-related transaction.
Once digitised, all transfers, allotments, rights issues, bonus issues, buybacks and changes in ownership structure must be processed exclusively through the CDS.
The regulator has already made it mandatory for newly incorporated unlisted companies to issue shares only in electronic form.
The latest phase extends this requirement to legacy firms, introducing a structured transition designed to minimise disruption to business operations.
Officials say the move will significantly reduce litigation arising from disputed ownership claims, a persistent challenge in systems dependent on paper certificates.
Electronic records will provide real-time verification of shareholding, create tamper-resistant audit trails and accelerate transaction settlement.
For international investors and lenders, the reform enhances the reliability of ownership data and lowers counterparty risk.
Book-entry shares can also be pledged as collateral for bank financing, expanding access to credit for privately held companies and supporting capital formation in the domestic economy.
The SECP has approved detailed procedures governing induction into the CDS, including eligibility criteria, documentation requirements, verification protocols and fee structures, to ensure an orderly and secure migration.
The digitisation initiative forms part of Pakistan’s broader efforts to modernise its financial infrastructure and improve the ease of doing business.
By aligning its corporate registry practices with global norms, policymakers aim to boost investor confidence, reduce informality and strengthen oversight of ownership structures across the unlisted corporate sector.
