Meeting with apex regulator: Stock exchange suspends its chief regulatory officer

Move comes as he failed to ‘timely detect’ MR Securities default


Our Correspondent February 14, 2017

KARACHI: The Pakistan Stock Exchange (PSX) has suspended its chief regulatory officer (CRO) over having failed to timely detect the MR Securities scam and tightened regulations for brokerage houses on Tuesday.

“The Board {of Directors} has decided to suspend the CRO pending a detailed enquiry,” PSX said in a statement.

Earlier in the day, the board held a detailed meeting with the full bench of the apex regulator, the Securities and Exchange Commission of Pakistan (SECP), to discuss the way forward following default of MR Securities a couple of weeks ago.

The owner of the securities firm has fled since the SECP initiated a probe against him on the allegation that he had illegally utilised investors’ funds.

The PSX communicated that a total of 485 claims were received till date against MR Securities amounting to Rs1.2 billion. More claims are awaited.

In the meeting, chairman SECP expressed his concern over some single-member companies acting as stockbrokers and “directed the Exchange {PSX} to ensure all such brokers convert to a private or public company within the specified time period,” the statement added.

“This was essential to provide for necessary corporate set-up, code of ethics, effective compliance framework and for protection of clients’ assets,” the meeting resolved.

The SECP communicated that considering risk to investor arises substantially through custody of clients assets with brokers, not all brokers should be allowed to keep custody of clients’ assets, which the PSX agreed with.

In order to strengthen the Exchange’s capacity as a frontline regulator PSX agreed with SECP to put in place a stronger inspection regime for brokers, and on the need to establish a national level Brokers’ Association as a Self-Regulatory Organisation under the Securities and Exchange Commission of Pakistan Act, 1997.

“In line with international best practices, the mandate of such association should inter alia include formulating necessary code of ethics for its members and instituting disciplinary policies/procedures for non-compliances of relevant regulatory framework,” it said.

PSX was further directed to expedite implementation of the regulations relating to standardisation of brokers’ back office software as advised by SECP previously, which could have played a critical role in avoiding the recent broker defaults.

The SECP emphasised upon the need for implementing reforms for investor protection in a “forceful and timely manner.”

During the meeting, a number of measures were discussed “which were directed for implementation by the Commission in its previous meeting with the PSX board held on February 8, 2016,” the statement said.

The SECP advised the Exchange to expedite sale of assets of defaulting brokers and put in all efforts for early resolution of pending litigation in order to ensure that all pending claims of investors are satisfied in an expeditious manner, in particular small investors.

Published in The Express Tribune, February 15th, 2017.

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