SECP discusses recent broker default


KARACHI, Feb 14 (APP): The meeting of Board of Directors of the Pakistan Stock Exchange Limited (PSX) and officials of Securities and Exchange Commission of Pakistan (SECP) on Tuesday discussed the matters pertaining to recent broker default at the stock exchange.
The PSX board shared findings and recommendations of an internal inquiry into the recent broker default and role of the Chief Regulatory Officer (CRO) of the Exchange in timely detection and reporting of the same, a press release of PSX said here.
The Board has decided to suspend the CRO pending a detailed enquiry.
The Chairman SECP at the meeting emphasized the need for implementing reforms for investor protection in a forceful and timely manner and particular advised the Chairman PSX Board to ensure that there is no compromise on this aspect.
During the meeting, a number of measures were discussed which were directed for implementation by the Commission in its previous meeting with the PSX board held on February 8, 2016.
In order to strengthen the Exchange’s capacity as a frontline regulator
PSX agreed to put in place a stronger inspection regime for brokers, and on the need to
establish a national level Brokers’ Association as a Self-Regulatory Organization under the Securities and Exchange Commission of Pakistan Act, 1997.
In line with international best practices, the mandate of such association should inter alia include formulating necessary code of ethics for its members and instituting disciplinary policies/procedures for non-compliances of relevant regulatory framework.
The SECP communicated that considering risk to investor arises substantially through custody of clients assets with brokers, not all brokers should be allowed to keep custody of clients’ assets, which the PSX agreed.
PSX communicated that a total of 485 claims were received till date against M/s M.R. Securities amounting to Rs 1.2 billion, as opposed to various rumours circulating in the media regarding the number and amount of claims.
Upon SECP’s enquiry, PSX board briefed that out of five brokers defaults post 2008,
all pending claims against three defaulting brokers will be fully satisfied through sale of
assets of these brokers which was in progress; while there were pending litigation cases
against two brokers.
The SECP Chairman advised the Exchange to expedite sale of assets of defaulting brokers and put in all efforts for early resolution of pending litigation in order to ensure that all pending claims of investors are satisfied in an expeditious manner, in particular small investors. The SECP also advised PSX to provide fortnightly update on all pending cases to the Commission.
PSX was further directed to expedite implementation of the regulations relating to standardization of brokers’ back office software as advised by SECP previously, which could have played a critical role in avoiding the recent broker defaults.
The SECP stressed upon PSX to introduce stringent requirements for opening and operating branch offices by brokers and for strict monitoring of such branch offices for regulatory compliance, to ensure investor protection and discourage brokers from circumventing regulatory requirements.
The Chairman SECP expressed concern over some single member companies acting as stockbrokers and directed the Exchange to ensure all such brokers convert to a private or public company within specified time period.
This was essential to provide for necessary corporate set-up, code of ethics, effective compliance framework and for protection of clients assets.
Both the PSX Board and the Commission emphasized that the most important priority was to settle investor complaints and for that purpose PSX advises investors regarding lodging of complaints in the case of MR Securities (SMC-Pvt) Ltd with the broker at its offices located at Room # 204 215, 2nd Floor, LSE Building, Lahore, Tel: 042-36312222, Fax: 042-36368303, with copy to PSX Lahore Office located at Pakistan Stock Exchange Ltd, Lahore.