Judgement: SECP penalises KSE bigwigs

Managing director and his deputy fined for ‘failure to perform responsibilities’.

KARACHI:

The apex regulator of the country’s corporate sector has imposed a penalty on the Karachi Stock Exchange (KSE) top management for being ‘negligent in the discharge of their duties and obligations’.

The Securities and Exchange Commission (SECP) has fined KSE Managing Director Nadeem Naqvi (Rs200,000) and Deputy Managing Director Haroon Askari (Rs500,000) for having ‘failed to perform their responsibilities’.

Separately, the SECP also imposed a fine of Rs1 million on the Karachi Stock Exchange, the frontline regulator of the equity market, in the same case for deviating from the requirements laid down in the System Audit Regulations and being negligent in the discharge of its obligations.



The penalty was imposed after the SECP found that the top management failed to enforce the System Audit Regulations, which are meant to ensure that all brokers comply with the requirements of Securities and Exchange Ordinance 1969, SECP Rules 1971, Brokers and Agents Registration Rules 2001, Regulations of the KSE and SECP directives issued from time to time.

According to the order passed by the director of the Market Supervision and Registration Department, two ballots were held on July 2012 and January 2013 in pursuance of the System Audit Regulations. These regulations require system audit reports of the selected brokers must be forwarded, along with counter-comments by the brokers, to the SECP within 45 days of submission of reports. However, first reports of non-compliant brokers did not contain views of the KSE and counter-views of the non-compliant brokers.

Moreover, the SECP order says enforcement actions were taken based on second reports instead of first ones, which was in violation of the System Audit Regulations. Also, the SECP said the KSE managing director and his deputy failed to ensure timely and appropriate enforcement actions in respect of non-compliance reported in various system audit reports, including Moosa Noor Mohammad Shahzada and Company (MNM) and B&B Securities (BBS).

This led the SECP to issue a show cause notice to Naqvi and Askari, seeking their views on issues ranging from non-inclusion of views of brokers to non-sharing of the reports of Inter-market Securities (IML), Invest Capital Markets (ICS), and First National Equities (FNE), non-initiation of action against MNM and BBS in a timely manner, and non-initiation of enforcement action, and subsequent declaration as compliant, against First Capital Equities (FCE), Gazipura Securities and Services (GSL), Oriental Securities (OSL), Foundation Securities (FSL) and Alpha Adhi Securities (ASL).

“I am of the view that regulations are rendered ineffective if not followed in letter and spirit,” said SECP Director Imran Inayat Butt in his order penalising the KSE top management.

“It is evident that with regard to the instances highlighted in the show cause notice, the respondents failed to ensure that appropriate enforcement actions were initiated by KSE in a timely manner against non-compliant brokers,” Butt said.

The SECP order is critical of the KSE deputy managing director in particular. It said Askari was responsible for ‘serious lapses and delays’ in the enforcement of regulations. The SECP also held him responsible for the default of MNS, a KSE broker, saying it could have been avoided in case Askari performed his duties diligently.

“The declaration of non-compliant brokers as compliant by KSE depicts laid-back attitude of Respondent No 2 (Askari) towards discharge of his responsibilities,” the SECP order stated.

Published in The Express Tribune, May 27^th, 2014.

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