KARACHI, Nov 27: The notices served by the Securities and Exchange Commission of Pakistan to 88 stock brokers, following the opposition’s demand after the release of forensic investigation report last week, are more of a bark than a bite.

The 88 brokers, who form 59 per cent of the active broker community of 150 members, have not been seen to be shaking in their shoes following the receipt of notices on Friday.

“If at all it would go to dig anything, it would at most be a ‘technical error,” said a broker who handed over a copy of the notice to Dawn but asked not to be identified. The notice specifies no concrete proof of ‘wrongdoing’ or ‘manipulation’ but simply asks for the broker to provide “documentary evidence” to prove compliance of Regulation 3(b) of the Regulations Governing Futures Contract.

The regulation (reproduced also in the notice to brokers) states: “No member shall have a sale position in a particular scrip of more than Rs50 million, unless the actual shares sold over and above the aforesaid limit, are deposited with the exchange or the broker gives documentary evidence that the shares are lying in CDC or with some banks or DFI, to satisfaction of the KSE management. For the purpose of establishing such sale position net buy position in T+3 shall be net off from net sale position in futures contract.”

Did all those brokers violate the rule? The SECP has asked the brokerage houses to provide “explanatory reply along with documentary proof not later than November 29”. An irate broker who was in receipt of the notice said that what that purported was to stick the blame first and ask questions latter.

The documentary evidence asked for are (i) disclose your position to KSE on each day when you were in excess of the Rs50 million limit stipulated in Regulation 3(b) for the March 2005 futures contract (ii) that you either (last word underlined) deposited the actual shares sold over and above the Rs50 million limit with the exchange as stipulated under Regulation 3(b) or (the last word underlined); that the shares equivalent to the net shares sold in the futures market were lying with CDC/bank/DFI in your own name or in the name of the customer on whose behalf you sold the shares in futures market (iii) the names of the customers and their respective CDC A/C numbers on whose behalf the sales contracts were entered into in the futures counter on the days noted in Annexure-A (specifies over Rs500 positions each day to the those served notices) and (iv) the net purchase in the T+3 market on each of the days noted in Annexure A for the specified scrips together with the names of customers, their client codes and their CDC A/C number.

An equity analyst thought that the status could have been checked from the CDC. Since there was no universal identification number (UIN) at the time (and still isn’t), sales of each investor could not be verified.

The onus of proving that the client sold against delivery would be on the stock broker. Since the investors were engaged in the arbitrage between ready and futures, all that the clients have to do is to show to the broker that he was not involved in short selling but traded actually against shares. The data would be passed on to the apex regulator.

Most analysts hold the view that the net thrown in by the SECP has too big holes and if the attempt is actually to catch violators, it is an effort in futility.