Damage control: ACE Securities to lose TRE certificate today

KSE to take formal decision on forfeiture; move comes after brokerage house’s failure to meet investors’ claims

KARACHI:

The Karachi Stock Exchange (KSE) will forfeit the trading right entitlement (TRE) certificate of ACE Securities on Friday following the brokerage house’s failure to meet investors’ claims, according to a KSE official.

Speaking to The Express Tribune on Thursday, KSE Regulatory Affairs Committee Chairman Shabbar Zaidi said the exchange’s board of directors will take the formal decision to forfeit the trading right of ACE Securities in its Friday meeting.

The KSE suspended the operations of ACE Securities on April 27, after the brokerage house failed to respond to investors’ requests for share transfers and cash withdrawals.

The exchange suspended ACE Securities’ TRE certificate last Tuesday after it missed two consecutive hearing opportunities on May 6 and May 12, which were to be held to look into the “non-resolution of a large number of investors’ complaints involving substantial amounts”.

Investors have yet to receive any relief from the regulator with regard to their shares and cash stuck with ACE Securities, as its sponsors allegedly fled the country in mid-April.

As per the KSE regulations, the exchange may proceed ex parte against a TRE certificate holder in case he fails to appear in two consecutive hearings.

However, some investors believe the delay of more than two weeks in the forfeiture of ACE Securities’ TRE certificate is inordinate because the rules allow the exchange to quicken the whole process for the protection of their interests.

According to Zaidi, the KSE Regulatory Affairs Committee can only suspend the TRE certificate, as its forfeiture is ordered by the KSE board of directors.

In an email sent to The Express Tribune, the spokesperson for the Securities and Exchange Commission of Pakistan (SECP) – the apex regulator of the capital markets – said that default proceedings against a broker, including inviting investors’ claims, are handled by the stock exchange.

The spokesperson did not reply to the question whether the SECP has cancelled the brokerage licence of ACE Securities in the wake of its default since April 27.

Unconfirmed reports suggest that mid-level employees of ACE Securities have secretly approached investors with a proposal that they can receive 50% settlement of their claims against the brokerage house if they unilaterally withdraw their complaints filed with the KSE regulatory department.

Following the forfeiture of the TRE certificate today, the exchange will be able to sell the assets of ACE Securities in order to meet its obligations towards investors, National Clearing Company of Pakistan (NCCPL) and other TRE certificate holders.

These assets include securities and deposits of ACE Securities held in the custody of the exchange; securities, cash and bank guarantees held in the custody of NCCPL; base minimum capital maintained with the exchange; and all other securities deliverable to ACE Securities by other TRE certificate holders or NCCPL.

Sources say the quantum of unverified claims against ACE Securities now stands around Rs350 million. In contrast, the ballpark figure for the proceeds of the sale of assets, KSE shares held in the blocked account of ACE Securities, and the amount set aside in the Investors’ Protection Fund is in the range of Rs80-90 million only.

Published in The Express Tribune, May 15^th, 2015.

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