PSX suspends broker for non-segregation of client assets

KARACHI: The Pakistan Stock Exchange (PSX) has suspended an Islamabad-based broker for non-segregation of client assets, while its chief executive officer found his way out of the country.

The PSX in its notice suspended the Trading Rights Entitlement Certificate (TREC) of Stock Street (Private) Limited, which had received the TREC after integration of the three stock exchanges under the PSX. This is the first suspension of any brokerage house by the PSX since its integration on January 11, 2016.

One official, who was not authorised to give his name in the media, told The News that the brokerage house was involved in violation of regulations related to the rights of investors having separate account for their shares. “Broker has to keep client’s assets separately,” he said. “There were no shares in the sub account.”

“In view of continuous non-compliance by M/s Stock Street (Pvt) Limited, TRE Certificate holder, PSX, the Chief Regulatory Officer (CRO) of the Exchange in the best interest of the market has decided to take emergent action and suspend all trading terminals of the said TREC holder with immediate effect until further notice,” says the notice.

The official said that the action was taken on emergent basis, as serious violation of article 4.19 of the PSX Rulebook could have resulted in losses to investors’ of the brokerage house. Violation was witnessed in few investor accounts of the broker out of several accounts the brokerage house maintained, he said.

Under the rules, the brokers have to keep a separate account of their investors, and sub-account of their holdings. But, in this case, the rule was violated, and sub-accounts of few investors were missing.

Since the action was taken on emergent basis, approval of the board has been sought after the action, he said. The matter is likely to be discussed in the board meeting this week, most likely on Wednesday.

After approval of the board, the brokerage house would be issued notice for non-compliance and would be asked to fulfil all requirements within the given time. In failure to do so, its license would be forfeited.

However, the official said, the CEO of the brokerage house left the country when he heard of about the opening of investigations against his brokerage house. “His second top ranking man conveyed to us that the CEO ran away to the US because of the investigations,” he said.

According to the rules of the PSX, when a broker’s license is forfeited, ISE (Islamabad Stock Exchange) Fund Committee or the PSX would invite claims of the investors and resolve them. But, in the case of Islamabad based TREC holder, the case is most likely to be handled by ISE Fund Committee.

The news contacted the two phone numbers of Stock Street (Pvt) Limited available with Securities and Exchange Commission of Pakistan (SECP), but both of them were non-functional. Another number was provided by Pakistan Telecommunication Limited consumer service, which did not work either.