SECP SRO 328(I)/2026: Mandatory Electronic Share Conversion for Unlisted Companies in Pakistan
The Securities and Exchange Commission of Pakistan (SECP) issued S.R.O. 328(I)/2026 on 23 February 2026, directing all unlisted companies with share capital to convert their physical share certificates to electronic, book-entry form. The notification marks the final phase of Pakistan's corporate dematerialisation programme, which began with listed companies and has now been extended to the much larger universe of unlisted companies. Any company intending to carry out a share-related transaction, whether a transfer, new allotment, bonus issue, rights issue, or buy-back, must first ensure that all relevant shares have been dematerialised and are held through the Central Depository System (CDS) operated by the Central Depository Company of Pakistan Limited (CDC).
This article explains what the notification requires, how to comply, what fee relief is available, and what happens if a company fails to act.
Background: Why Dematerialisation Matters
Pakistan has approximately 120,000 registered companies, the vast majority of which are unlisted. Until now, most of these companies maintained their share registers on paper, with shareholders holding physical share certificates as evidence of ownership. This system was prone to several well-known problems: physical certificates can be lost, forged, or damaged; paper-based transfers are slow and require physical delivery of documents; and the paper trail makes it difficult for regulators to verify ownership structures or detect suspicious transactions.
The move to electronic shares addresses all of these issues. Shares held in the CDS are recorded in a central electronic register, ownership is verified instantly, transfers can be executed without physical paperwork, and the SECP gains real-time visibility into the shareholding structures of all companies participating in the system. The reform also aligns Pakistan with international best practices; most developed economies completed dematerialisation of both listed and unlisted company shares years ago.
What the SRO Requires
S.R.O. 328(I)/2026 imposes a straightforward requirement: before any share-related transaction can take place, all shares of the company involved in the transaction must be in book-entry form. This applies to share transfers between existing shareholders, allotment of new shares (whether through fresh issuance, bonus shares, or rights issues), share buy-backs, and any other corporate action that affects the company's share capital.
The notification gives companies a 30-day window from the date of issuance to complete the conversion process for any shares that need to be transacted. In practice, this means that a company cannot process a share transfer unless both the transferor's and transferee's shares are already in electronic form. If a shareholder holds physical certificates and wishes to sell or transfer shares, the certificates must first be dematerialised through the CDS before the transaction can proceed.
The Conversion Process
The process for converting physical shares to electronic form involves several steps. First, the company must open a corporate account with the CDC. This requires submitting the company's incorporation documents, board resolution authorising the dematerialisation, and details of the existing share register. Second, individual shareholders must open CDS investor accounts, either directly with the CDC or through a CDC participant (typically a broker or financial institution). Third, physical share certificates are surrendered to the company, which cancels them and instructs the CDC to credit the corresponding number of shares to the shareholder's CDS account.
The process is administrative rather than complex, but it does require coordination between the company, its shareholders, and the CDC. Companies with a small number of shareholders, such as family-owned businesses or single-member companies, will find the process straightforward. Companies with a larger shareholder base may need more time and effort to ensure all shareholders open CDS accounts and surrender their physical certificates.
CDC Fee Relief Package
Recognising that the mandatory conversion imposes costs on companies, particularly smaller ones, the CDC announced a comprehensive fee relief package shortly after the SRO was issued. Under the package, the annual fee for companies with paid-up capital of up to Rs 25 million is waived for the first year. The security deposit fee, initial conversion deposit, and security deposit processing fee are waived for all unlisted companies for the first year, regardless of their paid-up capital.
This relief is designed to remove the cost barrier for small and medium-sized companies, many of which may have limited budgets for regulatory compliance. The CDC has also set up a dedicated helpline and onboarding team for unlisted companies to assist with the conversion process. After the first year, standard CDC fees will apply, but these are modest relative to the size of most companies' share capital.
Penalties for Non-Compliance
Non-compliance with S.R.O. 328(I)/2026 carries consequences. A company that has not converted its shares to book-entry form is effectively frozen: it cannot process any share transfers, issue bonus shares, conduct a rights issue, or carry out any other transaction that affects its share capital. This is a practical penalty in itself, as it prevents the company from raising capital, bringing in new investors, or facilitating exits for existing shareholders.
In addition, the SECP may impose financial penalties under Section 510(2) of the Companies Act 2017. The applicable penalty level is Level 3, which covers contravention of SECP regulations and directions. The specific monetary amount depends on the nature and duration of the contravention, but the SECP has broad discretion in setting the penalty.
What Companies Should Do Now
The 30-day deadline from the SRO's issuance in February 2026 has already passed for the initial compliance window. Companies that have not yet begun the conversion process should act without delay. The first step is to contact the CDC to open a corporate account and understand the onboarding requirements. The second step is to notify all shareholders that they need to open CDS investor accounts if they do not already have one. The third step is to coordinate the surrender of physical certificates and the crediting of electronic shares. Companies should also pass a board resolution documenting the decision to dematerialise and authorising the company secretary or relevant officer to manage the process.
Companies that do not anticipate any share transactions in the immediate future may be tempted to delay, but this carries risk. If a shareholder dies, goes through divorce proceedings, or wishes to sell their stake, the company will not be able to process the resulting share transfer until dematerialisation is complete. Completing the process now avoids the risk of being caught unprepared when a transaction is needed urgently.
Conclusion
S.R.O. 328(I)/2026 completes Pakistan's transition from paper-based to electronic share ownership across the entire corporate sector. The reform enhances transparency, reduces fraud risk, and brings Pakistan's corporate infrastructure in line with international standards. For unlisted companies, the immediate priority is to complete the conversion process and take advantage of the CDC's fee relief package while it remains available.
For assistance with SECP compliance, share dematerialisation, or corporate governance matters, contact LexForm.