KARACHI, June 28: On Wednesday, a notice coming out from the office of the Securities and Exchange Commission of Pakistan (SECP) and reaching the three stock exchanges admonished brokers on what the apex regulator thought was a violation of the law.

The notice stated that in analysing the trading data of stock exchange members at KSE and LSE for the period April 3, 2006 to June 26, 2006, the SECP had observed that certain members of the exchanges were apparently either jointly or severally, deliberately and artificially depressing the prices of securities by selling them (and subsequently purchasing the same scrip at lower prices to square their position at the end of the day), or they were purchasing the same scrip at lower prices to square their positions at the end of the day), or were purchasing the securities to raise the price of scrip (and then selling them at higher prices to square their positions at the end of the day).

The SECP notification further stated that the practice of purchasing securities to raise their price and to induce its purchase by others or selling securities (even though the sale is backed by delivery of shares) to depress their price for the purpose of inducing its sale by others operates as a fraud, deceit or manipulation upon other investors in the market and was therefore an offence under the Securities and Exchange Ordinance, 1969.

“All the stock exchanges are, therefore, hereby requested to inform their members to refrain from such or similar practices. The commission will initiate action against persons engaged in such or similar activities, in accordance with the law,” the regulator’s notice concluded.

The notice was being variously interpreted. A principal concern among market participants was whether it would be construed as unlawful, if a broker bought and sold at low or high prices on the orders of his client?

Meanwhile, the investigations by the SECP on the alleged misconduct by some of the stock brokers in the April-June stock market meltdown are progressing at their own pace. Regulators have not kept the public informed on how things are going, so several stories are doing the rounds.

One coming from a credible source says that the SECP has forwarded a list of four audit firms to each of the brokerage firm, which are the target of the probe. The brokerage house has been asked to choose a firm of its liking from the four, which would be mandated to audit its accounts. A day ago, those brokers were understood to have received notices from the apex regulator informing that senior audit personnel would be visiting them.

Such outsourcing makes it evident that the SECP is drained of professionally qualified and trained staff. “Who will be the in charge in this case: the SECP team or the outside auditor?” wondered a head of brokerage firm, who is in receipt of such a notice. There is also the talk that a team of three investigators from the US, was commissioned by the SECP to assist in its probe. The team has now left for their homeland. A top stock broker made that claim to Dawn on Wednesday, though most of the market participants were unaware of either their entry or exit.

SECP chairman Razi-ur-Rehman Khan could not be reached to verify the truth of the matter.