The apex regulator has directed KASB Securities to deposit the fine within 30 days of the issuance of the order. CREATIVE COMMON
One of the leading brokerage houses of the country in terms of the volume of business and corporate and retail clienteles, KASB Securities was found involved in purchasing open-end mutual funds in its own name, thus misusing the clients’ funds.
In its order issued on March 31, the SECP directed KASB Securities to convert its investments in the open-end mutual funds worth Rs220.7 million to cash and deposit the same in the clients’ bank accounts besides ensuring proper segregation of clients’ assets in the future.
“The respondent (KASB Securities) failed to provide any evidence (as to) from which bank account the amount for (the) purchase of these open-end mutual funds was released. Accordingly, (it) failed to maintain segregation of clients’ assets,” the order stated.
An SECP-appointed inspection committee reviewed the books and records of KASB Securities and submitted its findings on November 7, 2013. As per the rules, the report was shared with the brokerage house, which submitted its response to the inspection report on December 5.
In addition to the lack of segregation of clients’ assets, non-compliance with Leveraged Markets and Pledging Rules 2011, and the imposition of late payment charges, the inspection report stated that the firm “failed to classify its employees as proprietary” under Regulations for Proprietary Trading 2004.
Following the receipt of the response from KASB Securities, the SECP issued the company a show cause notice on January 17. In hearings before SECP officials as well as written responses, KASB Securities maintained that allegations of regulatory violations were either incorrect or based on a difference of interpretation, misconception and misunderstanding.
“The reason that these open-end funds of Rs220.7 million are being shown as KASB Securities short-term investments in its interim financial statements of June 2013 is because of standard accounting treatment of such investments, just as clients’ funds in the form of cash deposited with KASB Securities would have been shown as cash/bank balances of KASB Securities in its accounts,” the order quoted the brokerage firm as saying.
However, SECP’s Market Supervision and Registration Director Imran Inayat Butt commented that the open-end mutual funds amounting to Rs220.7 million appearing in KASB Securities’ own name are actually clients’ funds.
“These investments were classified as proprietary investments in the books of the accounts of the respondent (KASB Securities). No specific authority was given to the respondent (KASB Securities) by its clients to invest their funds in open-end funds,” the order said.
Proprietary trading means a brokerage firm trading for its own gain rather than commission from its clients.
Saying that KASB Securities is in violation of the applicable regulatory framework, the order reminded the broker that it is supposed to be a custodian of its clients’ assets and must not engage in any conduct or practice that may harm their interest.
The apex regulator has directed KASB Securities to deposit the fine within 30 days of the issuance of the order.
Published in The Express Tribune, April 4th, 2014.
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atleast fine should be double of the profit made and share it with those clients too