Non-compliance: Switch Securities put under restrictions

The regulator has caught, penalised several brokers for using clients’ money illegally

KARACHI: The Pakistan Stock Exchange (PSX) put a brokerage house under regulatory restriction on Tuesday for its non-compliance with the laws relating to the segregation of clients’ assets.

The PSX imposed a restriction on Switch Securities, a share brokerage firm, which bars it from opening new accounts until further notice, according to a note issued to all market participants.

Sometimes brokers use their clients’ idle funds for either proprietary trading or leverage financing, which is forbidden as per the PSX regulations.

Under the prevailing rules, brokers must ensure that the assets belonging to their clients are kept separated from the assets of their own. Each broker is required to maintain a separate bank account for all the fund deposits of its clients along with record/breakdown of clients’ balances.



Although the law allows that a broker may keep clients’ unutilised funds in a profit-bearing bank account, the law says it must pass on the profit earned on these funds to the clients out of the total profit accrued as per the mutual understanding.

The segregation of clients’ assets has become a critical issue of late, as the regulator has caught and penalised a number of brokers for using their clients’ money illegally in recent months. The PSX imposed regulatory restrictions on ACE Securities, Aziz Fida Husein and Company, Azee Securities, Darson Securities and Live Securities in the recent past for their non-compliance with brokerage rules.

The PSX regulations entail that the clients’ funds and securities must not be used by the broker for any purpose other than the ones authorised by the client in writing. The broker is also obliged to maintain and furnish documentary evidence to substantiate the compliance with these regulations as and when required by the exchange.

Published in The Express Tribune, June 1^st, 2016.

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