SECP fines Invest Capital Markets

Regulator says brokerage firm failed to maintain net capital balance.

KARACHI: The Securities and Exchange Commission of Pakistan (SECP) has imposed a penalty of Rs500,000 on Invest Capital Markets, a Karachi-based brokerage, for violating the regulations governing the capital adequacy requirements.

In an order signed by SECP Director Imran Inayat Butt, the apex regulator of the securities market said Invest Capital Markets failed to maintain net capital balance (NCB) in accordance with the regulatory framework.

NCB is a measure of capital adequacy that is used to calculate the maximum leverage a broker can have in any particular market, such as ready market, deliverable futures market and cash settled futures contracts. Every broker is bound to submit bi-annually a certificate from an auditor confirming its NCB on the format prescribed by the stock exchange – something Invest Capital Markets failed to do.

“The respondent, being aware of the fact that its NCB is negative, kept on reporting in the National Clearing House System (NCHS) that it has maintained minimum NCB and/or capital adequacy requirements,” the order said.

The SECP order stated that the apex regulator has ‘very serious reservations’ on the conduct of Invest Capital Markets. The brokerage house “is required to demonstrate fairness in the conduct of its business and is not expected to make any false/misleading statement and to engage in such act that compromise the market transparency, clients’ interest, systemic risk to the stock market and increase the default risk,” it said.

In its response to the earlier show-cause notice issued by the SECP, Invest Capital Markets had admitted that there was a delay in the submission of NCB certificate. With regard to its clients’ shares present in the brokerage’s ‘house account’, Invest Capital Markets stated that it had “complete details as to whom those shares belong.” However, the brokerage said it had ‘no other choice’ but to let these shares stay in its house account because no one had contacted it for ownership/transfer of those shares.

In addition, the SECP also directed Invest Capital Markets to submit its NCB certificate before March 15.

Published in The Express Tribune, March 4^th, 2015.

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