The Pakistan Credit Rating Agency Limited
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Afnan Iqbal

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PACRA Assigns Initial Broker Management Rating to Spectrum Securities Limited

Rating Type Broker Management
(30-Nov-21 )
Action Initial
Long Term BMR3+
Short Term -
Outlook Stable
Rating Watch -

The assigned rating of Spectrum Securities Limited ("SSL" or the "Company") incorporates adequate ownership structure, satisfactory regulatory framework, sound internal controls and strong business acumen of sponsor. The Company has adequately defined organizational hierarchy where the responsibilities and reporting lines are logically structured. The assigned rating takes into account a sound IT infrastructure supported by defined IT, disaster recovery and back-up policy. The Company provides prudent services to its clients in the form of complaint management, access to technical and fundamental reports and a dynamic reporting mechanism. The Company primarily provides the services of equity brokerage and research with an average market share of ~1.5% in FY21. The Company has competitive clientele; however, limitation in revenue diversification exists. Further, governance framework is considered to be sound as an independent insight provides comfort. The rating also incorporates low leveraged capital structure of the Company. Timely materialization of outstanding receivable is important. The Company is running a proprietary book; however, the magnitude of short-term investments are nominal as compared to equity. In line with the improving volumes of equity market in FY21, the Company witnessed a significant increase of ~1.16x in the brokerage income. At end-Jun'21, the brokerage revenue stood at ~PKR 118mln (SPLY: ~PKR 55mln). The Company has a reasonable capitalization level with regulatory Net Capital Balance (NCB) standing at ~PKR 92mln at end-Jun'21.
Improvement in equity through further capital injection and reduction in outstanding receivables will be important, going forward. The rating is dependent on the management's ability to enhance its market share to improve its competitive position in the brokerage industry. Retention of key personnel, improvement in customer servicing tools and maintaining strong controls will remain critical.

About the Entity
Spectrum Securities Limited ("SSL" or the "Company") is TREC Holder of Pakistan Stock Exchange Limited was formed on October 27, 2014. The Company was acquired from M/S Mazhar Hussain Securities (Pvt.) Limited in December, 2000. The Company’s board of directors comprises of three individuals including the CEO – Mr. Ahmed Nabeel. The CEO, Mr. Ahmed Nabeel has an extensive and diversified experience in the field of capital market spanning over twenty five years. Mr. Munir Hussain serves the board as an independent director.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.