Anatomy of a trade: In BMA Capital case, timeline shows plenty of grey areas
SECP claims the brokerage defrauded its client, BMA claims it was trading on its own account.
SECP is trying to make a point that they are vigilantly policing the country’s capital markets and are protecting the interests of the investors. PHOTO: bmacapital.com
KARACHI:
In slapping BMA Capital with the highest fine for securities fraud in Pakistani history, the Securities and Exchanges Commission of Pakistan is trying to make a point: that they are vigilantly policing the country’s capital markets and are protecting the interests of the investors. But have they gotten it right this time?
In financial services, particularly the stock market, crimes are often misuses of information. So it matters a great deal in investigating them to figure out who knew what and when and sometimes even how. The SECP insists that the Karachi-based investment bank has defrauded its client. BMA Capital insists that it has not broken any laws.
The Express Tribune has put together a timeline of what happened to help assess which party is correct. The timeline utilises information gathered from the SECP’s investigation of the matter, and none of the events in question are disputed by BMA.
2011
July
Bafin (Nederland) BV, a Dutch holding company that owns much of Bata Brands’ global subsidiaries, becomes a client of BMA Capital. Since that time, it trades only in shares of Bata Pakistan. During this month, Bafin bought 549,989 shares of Bata Pakistan in 23 negotiated, off-market transactions at an average price of Rs702.65 per share. The maximum size of a single trade was 25,000 shares. BMA Capital was Bafin’s only broker.
July to September
Bafin buys 12,377 shares of Bata Pakistan at a weighted average price of Rs664.56.
2012
August 17:
BMA Capital enters into negotiations with National Bank of Pakistan to buy a large lot of Bata Pakistan shares for itself. At this time, Bata is trading at Rs789 per share in the open market.
August 24:
National Bank sells 578,000 shares of Bata Pakistan to BMA Capital at Rs920 per share, in a negotiated, off-market transaction. The stock had closed that day at Rs870.53 per share, giving National Bank a premium of 5.7% over that day’s closing price and a 16.6% premium over the price from the day the negotiations with BMA began.
August 27:
Bafin BV places an order to buy 587,500 shares of Bata Pakistan. The order was placed, according to BMA, directly to its CEO Moazzam Malik on his mobile phone while he was in Singapore.
August 29, 30:
BMA sells its own shares of Bata Pakistan, which it had early bought from NBP, to Bafin for Rs1,000 per share. Bata shares had closed trading the previous day at Rs959.75 per share. On August 29 and 30, Bata Pakistan shares closed at Rs1,007.73 and Rs1,058.11 respectively.
2012
September 3:
SECP sends a letter to BMA, asking it to explain its transactions that appeared to be front-running its client.
2012
October 3:
After requesting two extensions, BMA finally responds. Among other things, it states: “our instructions from Bafin were to try to reduce the price of the Bata shares we buy from National Bank to the best of our ability.” That implies that even the trade on August 24 was on behalf of Bafin, and not a purely proprietary trade by BMA.
October 17:
SECP issues an SCN, asking BMA to appear before the commission to explain its actions.
2012
November 5:
BMA sends a second letter to SECP, this time drafted by its lawyers, RIAA Law Advocates and Corporate Counsellors, in which it claims that the trades on August 24 as well as August 29 and 30 were all proprietary trades, and that it was not acting in either case as Bafin’s broker.
November 12:
After having been granted a two-week extension, BMA finally appears before the SECP in Karachi. BMA essentially reiterates the position taken in the November 5 letter. The SECP is not satisfied and asks for further evidence.
November 23:
BMA’s lawyers write another letter, this time quoting an e-mail sent by Tim Jude, vice president for finance at Bata Brands global headquarters in Switzerland in which he confirmed that Bafin (a subsidiary of Bata Brands) placed the firm order on August 27. The e-mail is dated November 18.
November 30:
SECP directly contacts Jude directly and asks him further clarifying questions.
2012
December 4:
Jude responds saying that “we had been discussing with BMA for quite some time [the] opportunity for acquiring [Bata] shares,” adding that a firm order was placed only much later on August 27. Jude’s response appears to correspond well with BMA’s letter of October 3, which suggests that the trades were made on behalf of Bafin, and thus not proprietary.
2013
February 19, 2013:
SECP issues its detailed order, declaring BMA to be in violation of its responsibility as Bafin’s broker and demanding that it pay a Rs50 million fine, the highest in Pakistani capital markets history, which exceeds the Rs46 million profit that BMA earned on the August 29 and 30 trades.
Published in The Express Tribune, February 23rd, 2013.
In slapping BMA Capital with the highest fine for securities fraud in Pakistani history, the Securities and Exchanges Commission of Pakistan is trying to make a point: that they are vigilantly policing the country’s capital markets and are protecting the interests of the investors. But have they gotten it right this time?
In financial services, particularly the stock market, crimes are often misuses of information. So it matters a great deal in investigating them to figure out who knew what and when and sometimes even how. The SECP insists that the Karachi-based investment bank has defrauded its client. BMA Capital insists that it has not broken any laws.
The Express Tribune has put together a timeline of what happened to help assess which party is correct. The timeline utilises information gathered from the SECP’s investigation of the matter, and none of the events in question are disputed by BMA.
2011
July
Bafin (Nederland) BV, a Dutch holding company that owns much of Bata Brands’ global subsidiaries, becomes a client of BMA Capital. Since that time, it trades only in shares of Bata Pakistan. During this month, Bafin bought 549,989 shares of Bata Pakistan in 23 negotiated, off-market transactions at an average price of Rs702.65 per share. The maximum size of a single trade was 25,000 shares. BMA Capital was Bafin’s only broker.
July to September
Bafin buys 12,377 shares of Bata Pakistan at a weighted average price of Rs664.56.
2012
August 17:
BMA Capital enters into negotiations with National Bank of Pakistan to buy a large lot of Bata Pakistan shares for itself. At this time, Bata is trading at Rs789 per share in the open market.
August 24:
National Bank sells 578,000 shares of Bata Pakistan to BMA Capital at Rs920 per share, in a negotiated, off-market transaction. The stock had closed that day at Rs870.53 per share, giving National Bank a premium of 5.7% over that day’s closing price and a 16.6% premium over the price from the day the negotiations with BMA began.
August 27:
Bafin BV places an order to buy 587,500 shares of Bata Pakistan. The order was placed, according to BMA, directly to its CEO Moazzam Malik on his mobile phone while he was in Singapore.
August 29, 30:
BMA sells its own shares of Bata Pakistan, which it had early bought from NBP, to Bafin for Rs1,000 per share. Bata shares had closed trading the previous day at Rs959.75 per share. On August 29 and 30, Bata Pakistan shares closed at Rs1,007.73 and Rs1,058.11 respectively.
2012
September 3:
SECP sends a letter to BMA, asking it to explain its transactions that appeared to be front-running its client.
2012
October 3:
After requesting two extensions, BMA finally responds. Among other things, it states: “our instructions from Bafin were to try to reduce the price of the Bata shares we buy from National Bank to the best of our ability.” That implies that even the trade on August 24 was on behalf of Bafin, and not a purely proprietary trade by BMA.
October 17:
SECP issues an SCN, asking BMA to appear before the commission to explain its actions.
2012
November 5:
BMA sends a second letter to SECP, this time drafted by its lawyers, RIAA Law Advocates and Corporate Counsellors, in which it claims that the trades on August 24 as well as August 29 and 30 were all proprietary trades, and that it was not acting in either case as Bafin’s broker.
November 12:
After having been granted a two-week extension, BMA finally appears before the SECP in Karachi. BMA essentially reiterates the position taken in the November 5 letter. The SECP is not satisfied and asks for further evidence.
November 23:
BMA’s lawyers write another letter, this time quoting an e-mail sent by Tim Jude, vice president for finance at Bata Brands global headquarters in Switzerland in which he confirmed that Bafin (a subsidiary of Bata Brands) placed the firm order on August 27. The e-mail is dated November 18.
November 30:
SECP directly contacts Jude directly and asks him further clarifying questions.
2012
December 4:
Jude responds saying that “we had been discussing with BMA for quite some time [the] opportunity for acquiring [Bata] shares,” adding that a firm order was placed only much later on August 27. Jude’s response appears to correspond well with BMA’s letter of October 3, which suggests that the trades were made on behalf of Bafin, and thus not proprietary.
2013
February 19, 2013:
SECP issues its detailed order, declaring BMA to be in violation of its responsibility as Bafin’s broker and demanding that it pay a Rs50 million fine, the highest in Pakistani capital markets history, which exceeds the Rs46 million profit that BMA earned on the August 29 and 30 trades.
Published in The Express Tribune, February 23rd, 2013.