Capital market’s watchdog to introduce measures for investor protection

KARACHI: Capital market’s stakeholders and watchdog jointly planned to roll out a series of steps and measures to prevent investors’ losses in future on default of brokerage houses after a recent episode of a broker’s escape with the looted fund, a bourse spokesman said on Saturday.

“No doubt there is room for improvement in the systems of checks and balances, technology driven control and audit systems that can identify non-compliances early so that regulators can become more proactive,” said spokesman at the Pakistan Stock Exchange (PSX). 

Therefore, the spokesman added that the Securities and Exchange Commission of Pakistan (SECP), Central Depository Company (CDC), and National Clearing Company of Pakistan Limited (NCCPL) are working to implement standardisation of broker back office system and formation of specialised company as subsidiary of CDC.

Under the new initiative, all brokers will need to follow clearly specified standardised recording and accounting procedures of their dealing/transactions with investors, which can regularly be audited by the joint inspection team (JIT). 

The proposed Central Depository Company subsidiary will take over the responsibility of managing all assets of investors (both money and shares), giving investors an option to have assets with it rather in brokers’ sub-account.

Apparently, the regulators swung into action when a defaulted brokerage house managed to flee before the genuine claims of investors were met.    

The Pakistan Stock Exchange spokesman said the joint inspection team, consisting of Central Depository Company, National Clearing Company of Pakistan Limited and PSX, members found non-compliances of the brokerages, namely MR Securities and AWJ Securities, involving defaults of more than two billion rupees. 

One broker was found involved in trading from its main account in the Central Depository Company without using the subaccounts and issuing certificate for acquiring funds from the unsuspecting investors. 

Ironically, an independent authorised auditor absolved MR Securities from ‘any wrongdoing’.

“Unfortunately, before the full report with evidences could be completed, the broker shut down,” the spokesman said.

“The Securities and Exchange Commission of Pakistan and PSX are now fully focused on recovering the maximum assets of genuine investors and return those to investors as early as possible.”

The official said there are cases where investors have lost shares due to some brokers’ illegal behavior.

In some cases it has also come to light that investors themselves have given loan to brokers and received fixed monthly returns, “which is a completely illegal activity by both parties under the relevant regulations.”