ISLAMABAD: Securities and Exchange Commission of Pakistan Chairman Zafar Hijazi on Tuesday said that the regulator has advised the Pakistan Stock Exchange (PSX) to initiate ‘market intelligence’ methodology to check brokers overstepping the legal limits.

He was addressing a press conference while PSX Chairman Munir Kamal and Managing Director Nadeem Naqvi participated via a video link.

The chairman SECP also mentioned concerns expressed by brokers over the counter checking measures.

He said three brokers who defaulted recently were warned repeatedly against purchases beyond their capital capacity. Mr Hijazi said that the prime responsibility of the regulator is to secure small investor, bring transparency and ensure growth of the capital market.

He said that currently five more brokers are under strict observation.

The SECP conducts off-site and on-site inspections and in more sensitive cases they are done by a joint team of the CDC, NPCCL and PSX.

As the market touched new heights, a fresh wave of investors has entered the market. Some brokers have started deposit taking and offering fixed profits which is illegal, he explained.

Muneer Kamal said that regulatory bodies are vigilant and engaging brokers. He said the SECP would conduct at least one audit of each broker in a year.

Badla financing still exists in the market despite being declared illegal.

Nadeem Naqvi said that ‘badla’ financing was way lower in 2017 compared to 2008 when the stock market crashed.

“I guess that badla financing was around Rs10 billion currently, whereas the holdings under margin trading system (MTS) worth Rs14 billion,” he said.

Mr Naqvi also said that activities of certain brokers were neither totally legal nor clearly illegal. “We have repeatedly warned the small investors to refrain from risky modes and blind trust.”

He said that here is a grey area in the middle as some brokers take advantage of higher property rates and mortgage their house to finance the holdings of their investors, in an attempt to make higher gains.

“But the recent growth of the market was not based on higher leverage,” MD PSX added, “there is no need for a panic or assuming that the market was heading for a bubble burst.”

He said that the total market capitalisation stands at $90 billion.He said that because of market diversity and depth the individual brokers were not in a position now to manipulate it.

Media was informed over the years nine brokers were declared defaulters, out of which 100 percent payments have been made to claimants of four brokerage houses and payments to small investors were cleared.

These payments have been made from the recoveries from defaulting brokers as well as from the investor protection fund.

Regarding the suo moto action taken against the SECP’s recent actions by the Senate Standing Committee on Finance Chairman Zafar Hijazi said that they will explain their actions to the Committee during the meeting on March 8.

Published in Dawn, March 1st, 2017