September 04, 2007	Tuesday	Sha'aban 21, 1428

KARACHI, Sept 3: The Securities and Exchange Commission of Pakistan (SECP) on Monday invited comments from the ‘general public’ on two separate ‘drafts of codes of conduct’. The first one relates to ‘Analysts’ and the second to ‘Asset Managers and brokerage houses’.

The apex regulator said that the drafts were primarily derived from the Codes of Conduct issued by the CFA Institute and they set out minimum standards for analysts, asset managers and brokerage houses in various areas.

Those included duties of due care, skill and diligence, qualification, adequacy of resources and procedures, information exchange with clients and its disclosure, compliance and controls and responsibilities of management.SECP said it had thought out phase-wise implementation approach for the codes of conducts in the following order: (a) Receipt of public comments till October 31, 2007 and simultaneous discussions with stakeholders (b) Shortly after that, the SECP would announce timelines for issuance of final codes of conduct and related implementation guidelines together with implementation schedule.

“Moreover, the SECP is also contemplating introduction of a certification requirement for investment professionals/analysts”, said the regulator, adding: “This certification requirement may be partially based on the curriculum of the CFA examinations”.

The drafts of the two codes have been posted on the SECP website. A 14-page summary in respect of the ‘analysts’ noted that the code of conduct established requirements that “analysts” must follow when preparing/publishing investment research reports or making recommendations.

Those requirements represented the minimum policy and procedural requirements that analysts, and firms who employ analysts must have in place to minimise potential conflicts of interest. In the code, the expression “analyst” was stated to mean all legal and natural persons on whom the code was applicable.

“Disclosure required in abidance of the code must be clear, comprehensive and prominent. Boilerplate disclosure is not sufficient”, the draft stated.

The separate code of conduct for ‘Asset Managers and Brokerage Houses’ in its introduction to the six-page draft stated: The code outlines the ethical and professional responsibilities of firms that manage assets on behalf of clients.

This code is meant to apply, on a global basis, to firms (“Managers”), who manage client assets as separate accounts or pooled funds (including brokerage houses, collective investment schemes, mutual funds, and fund of funds).The introduction of these codes has been a public demand. Scrolling down the two drafts, the ‘Analysts’ code ends on ‘Penalties’. For breach of the code, penalties that could be imposed by the SECP have been suggested in the range of a notational amount of Rs5,000 to a maximum of Rs1,000,000, based on the nature of gravity of the breach as per the judgment of the commission.

Penalties in regard to breach of code of conduct by asset managers and brokerage houses do not appear to have been mentioned.

TRUST MODARABA: The SECP on Monday also issued an order, which it said was to ‘safeguard the interest of the certificate holders of Trust Modaraba’.

The Registrar Modarabas, SECP under sections 19 and 20 of the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 cancelled the registration of Trust Management Services (Pvt.) Limited (TMSL) and removed it as the management company of the modaraba.

Khawaja Adeel Aslam was appointed the administrator to take over and manage Trust Modaraba in place of TMSL. The administrator would exercise the powers of the chief executive and the board of directors.

The SECP observed that the action was necessitated on the basis of monitoring reports and market information which revealed misappropriation of public funds and gross violation of the Modaraba Ordinance, Rules and Prudential Regulations, by TMSL. In order to determine the factual position, the registrar modarabas ordered inquiries into the affairs of Trust Modaraba by the internal inspectors of the SECP. During the course of investigation, several opportunities were afforded to the former management to rectify the defaults and recover the misappropriated funds.

However, despite censure and reprimand the former management failed to satisfy the Registrar (Modarabas) in respect of the observations/charges communicated to them. As a consequence, the Registrar (Modarabas) had, penalised the concerned directors for violations of the law and had appointed the new administrator to manage the affairs.