ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has halted all cases against insider trading and front-running following the FIA enquiry and suspension of its chairman Zafar Hijazi.

The regulator filed the last case over insider trading and front-running in early June and lodged a criminal complaint against nine individuals in a district and sessions court in Karachi.

All activity in that case has been at a standstill since then.

Four large criminal cases of insider trading, front-running languish

The main focus of the commission on the stock market manipulation was in May. The Securities Market Division of the SECP conducted several enquiries. But the FIA soon started its enquiry into alleged record-tampering by Mr Hijazi. Since then, no progress has been made in filing further cases against any stock market manipulators.

Insiders confirmed to Dawn that not only existing criminal cases, but all other investigations and enquiries, against illegal trading have ground to a halt as an atmosphere of fear and suspicion has descended upon the regulator.

Apart from specific individuals, the SECP has been developing cases of serious misconduct against some employees of Bank of Punjab (BoP), United Bank Ltd (UBL), Bank of Khyber (BoK) and Habib Metropolitan Bank Ltd (HMBL).

These cases were the largest ones being pursued by the regulator as well as a rare example of the regulator pursuing misconduct by staff of large institutions. Staff members of the banks were alleged to have engaged in insider trading or front-running of stocks, sometimes using bank funds and other times their own.

Case details: The SECP filed a criminal complaint against a former employee of UBL, one of the largest banks in Pakistan, who allegedly acted as a rogue trader in connivance with a number of other individuals. The former employee was working as head of capital markets.

The employee, along with certain individuals, was alleged to have committed insider trading and employment of a fraudulent scheme, causing a financial loss to the bank he worked for.

The complaint alleges that the bank’s employee was involved in sharing inside information of trades by the bank with his main accomplice who then managed to devise a fraudulent scheme to make large profits. The schemes supposedly worked through some illiquid scrips. The said fraud scheme was unearthed by the SECP, and the criminal complaint filed against it is the very first complaint of its kind.

Another languishing criminal complaint is against the employees of BoK and the clients of two brokerage houses. BoK engaged in equity investment through multiple brokerage houses. The analysis of trading data revealed that some clients of the two brokerage houses were involved in front-running the orders of BoK and had excessive matched trades with those of BoK in many scrips and earned significant gains as a result.

According to the criminal complaint filed by the SECP, the employees holding the positions of group head for treasury and investment banking and dealer capital market and financial analyst were responsible. These BoK officers were involved in passing of information to the suspects in order to front-run the orders of BoK, according to the criminal complaint.

A similar criminal complaint has also been filed against an employee of BoP, who was head of equity capital market group, and his relatives. The bank made investments in the equity market through multiple brokerage houses. It was the job of this employee to implement bank decisions on investment and disinvestment from particular scrips.

Trade data revealed that his close associates were appearing as counter-party in a number of trades conducted by the bank. It was revealed that the associates were involved in front-running the orders of BoP in a number of listed securities and earned a significant profit.

A fourth criminal complaint is against an employee of HMBL who worked in the treasury department. He misused his position while using the inside information to front-run the bank and managed to earn a hefty profit through trades in various scrips.

Published in Dawn, August 20th, 2017