Securities and Exchange Commission of Pakistan determined to ensure investor protection and to end market abuse

Islamabad, July 19, 2016 (PPI-OT):The Securities and Exchange Commission of Pakistan (SECP) deplores articles and comments published in a section of the press, giving misleading impression that brokerage houses are surrendering their trading right entitlement (TRE) certificates due to stringent regulatory framework put in place by the SECP.

As a matter of fact, the 12 TRE certificate holders out of 380, surrendered their TREs for being mostly inactive or dormant. Some of them wanted to exit the brokerage business post- demutualization as they had been issued shares of Pakistan Stock Exchange (PSX) against their memberships. It is worth mentioning here that prior to demutualization, memberships at the stock exchanges were in limited supply as memberships apart from trading rights also carried ownership claim on the assets of the exchange.

Subsequent to demutualization of stock exchange, ownership has been separated through issuance of shares. Now a person can obtain trading rights either by purchasing the same from a brokerage house or from the stock exchange directly. The stock exchange under the Demutualization Act is allowed to issue 15 TRE certificates every year with effect from May 2016.

Under its statue, the SECP is entrusted with the prime responsibility of ensuring protection of investors both in terms of misuse of client assets by brokers and systemic risk in the market. It is with this vision that in the wake of the 2008 global crisis many reforms were instituted. The crisis resulted in 39 brokers defaulting on client assets with thousands of claims amounting to more than Rs3.7 billion. Cases against these brokerage houses are pending with the National Accountability Bureau and courts of law.

After the promulgation of the Securities Act, 2015, the SECP introduced various new regulations and many new requirements, following detailed consultation process including reporting on client-assets segregation considering instances of misuse of investors’ assets by brokers in the past. In case of the Securities Brokers (Licensing and Operations) Regulations, despite legal requirement of 15 days, extended consultative process was done, spanning over five months.

To address comments received and to account for ease of doing business, implementation of this framework has been staggered over phases allowing brokers sufficient time to meet the regulatory requirements. While ensuring continuity of business of brokers, the SECP’s reform agenda for the capital market underpins zero tolerance for market abuse and misuse of clients’ assets.

In the recent past, a number of steps have been taken by the regulator for market development which have led to inclusion of Pakistan in MSCI Emerging Markets Index and enhanced interest of international and local investors in divestment of PSX.

In order to maintain its standing in the emerging markets, and establishing itself as a premier investment destination, Pakistan capital market must move to the next level of development and the SECP stands committed to introducing enhanced disclosure and transparency reforms.

A recent initiative by the SECP has been the setting up of a dedicated Market Risk Analysis Unit at its head office to continuously monitor the risk in the market and carry out independent analysis of market situation. The regulator will ensure strict enforcement and compliance with the regulatory framework and handle any market abuse and activities that may exploit investors or damage confidence in our market with an iron hand.

For more information, contact:
Shakil Ahmad Chaudhary
Head, Internal and External Communication
Securities and Exchange Commission of Pakistan (SECP)
NIC Building, 63 Jinnah Avenue, Islamabad
Tel: +92-51-9214005 or +92-51-9214009 (Ext. 378)
Fax: +92-51-9206459
Cell: +92-302-8552254