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Second brokerage house goes broke

May 16, 2013
— File Photo
— File Photo

KARACHI: Unable to stand the heat at the stock market, where the KSE-100 index is heading towards the staggering 21,000-level, a second stock brokerage firm ZHV Securities is understood to have gone broke with around Rs400 million of claims against the house.

Details coming to light are hazy but a source close to the bourse claimed that the brokerage had already settled Rs300m worth claims, by returning shares to the clients. “The remaining Rs100m would be recovered through the sale of membership card; property belonging to the brokerage and tapping the KSE investors’ protection fund,” said the source.

He affirmed that the situation was not scary and that ZHV Securities was a well-respected firm in the brokerage business for years. It had run into financial difficulties and was fully co-operating to settle all claims.

Yet, matters relating to another stock brokerage house were not that heart-warming. According to market sources, brokers Moosa, Noor Mohammad, Shehzad (MNS Securities (private) Limited) had made good their escape with Rs600m of stockholders’ unsettled claims.

The membership licence of the brokerage has been suspended by the bourse. Investors familiar with the affair say that the brokerage used the old trick: obtain loans against pledge of clients’ shares with banks and then take the money and run perhaps out of the country.

It is understood that a lawyer representing MNS has asked KSE for a week’s time by which he said the brokers would return. The KSE is said to be monitoring the situation.

The stock market source said that the matters relating to MNS were complex as the stocks worth Rs200m belonging to ‘Abandoned property organisation’ were also held by the brokerage since 2008.

Yet, the investors were waiting for the frontline or chief regulator to make a straight breast of things and make ‘full disclosure of material information’ to the public, as rumours doing the rounds would cast a shadow of uncertainty. And as everyone knows that for capital markets uncertainty is worst than bad news.

On Wednesday, the KSE released a notice informing investors that the trading entitlement certificate (TREC) of stock brokerage firm ZHV Securities had been forfeited with immediate effect “on account of their inability to resolve admitted investors’ complaints/claims arising out of trades/transactions registered with the KSE due to financial precariousness.”

The KSE assured that the forfeiture of TRE Certificate of ZHV Securities would not affect the rights of their creditors in any manner and added that the corporate entity remains responsible for discharging all its financial obligations.

The bourse also invited all concerned investors/clients of ZHV Securities to submit their claims against the brokerage house along with all the documentary evidence. The KSE said it would scrutinise all claims to ascertain their legitimacy.