Set of rules aimed at investors’ protection, achieving objective of risk management. PHOTO: AFP
The new set of regulations aims to strengthen existing requirements for the stock market brokers to help achieve the objective of risk management and enhanced investors’ protection besides ensuring the continuity of business through the phased implementation of new requirements.
The new regime also takes into account the effect of integration of the three stock exchanges and facilitates the transition of brokers from the earlier regime to the new regime over an extended period of time.
A key aspect of the new regulations is the categorisation of brokers into trading and clearing categories in line with global best practices to allow custodial functions with financially sound brokerage houses only.
Such brokers will also be subjected to additional control, reporting, compliance and other requirements to ensure risk management. To achieve the said segregation, the concept of professional or general clearing member is also in the pipeline to facilitate clearing and settlement of trading-only brokers. Also, brokers not involved in custody and clearing functions will be subjected to fewer requirements as opposed to brokers undertaking such functions.
Additionally, due considerations have been made to facilitate the share brokers by keeping the cost of doing business at a minimum. The SECP had earlier invited public comments on the said regulations, subsequent to which sessions with all brokers of the three former exchanges were held.
New and improved requirements have also been prescribed pertaining to disclosures of financial risks to customers, adequate disclosures of the conflict of interest, confidentiality of client and non-public information, order execution and recording, reconciliations and reporting of client asset segregation, complaint handling, short selling, business contingency, formulation of policies and procedures for internal controls, trading by employees and other affiliated persons, compliance function, record maintenance and retention, regular audits etc.
Furthermore, the new regime introduces improved entry standards, criteria for sponsors, directors and key executives of brokerage houses, and corporate governance requirements. Through the regulations, enhanced risk-based financial resource requirements have also been prescribed for the securities brokers to ensure that only well-capitalised brokers operate in the securities market.
The SECP said the regulations are expected to have a positive impact on the outreach of the brokerage business in the country by allowing the segregation of core responsibilities and will improve standards of regulatory compliance for the brokerage industry in line with international benchmarks.
Published in The Express Tribune, June 25th, 2016.
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