ISLAMABAD, Jan 3: The SECP plans to bind the commodity exchanges and their members and brokers, under the commodity exchange and futures contract rules 2004, to exercise transparency in their affairs , and failure to abide by the rules could cost them cancellation of their registration and a maximum fine of Rs500,000.
The draft rules, prepared by the SECP in consultation with the National Commodity Exchange Limited, say no person shall operate or carry on his functions as a commodity exchange without registering with the SECP.
The rules observe that as a move to protect the interests of the investors and ensure fair dealings, the commission will ensure observing of rules by the exchange. The registration of an exchange shall be cancelled if any of its member, broker, director or officer contravened any provision or neglected or failed to comply with any requirement of the rules.
Besides, the commission can supersede the governing body or other authority of the exchange, suspend or remove the director, officer, member or broker from his office.
AUDIT ACCOUNTS: The rules state that an exchange shall submit its audited accounts annually to the SECP. Moreover, the commission can also ask an exchange to get its accounts audited by an auditor, who is a chartered accountant under the Chartered Accountants Ordinance, 1961, at its own expenses.
The exchange shall maintain and preserve the books of accounts and documents in an electronic format or other comparable format for a period of five years. These shall depict the true, accurate and up-to-date state of affairs of the exchange at any point in time.
Similarly, it shall maintain journals, cash book and any other record of original entry forming the basis of entries into any ledger. An exchange will preserve ledgers reflecting asset, liability, reserve capital, income and expenses, daily record of quotations and transactions on the exchange showing the times at which the transaction took place.
The rules say that record of transactions with the banks and that of security and margin deposits should also be properly kept. Register of members showing their full names and addresses, minute books of the meetings of the board, any standing committee or committees of the governing body or of the general body of members should also be preserved.
ANNUAL REPORTS: The annual report relating to the affairs of an exchange shall be submitted to the SECP in not less than 14 days before the meeting of the shareholders. The report shall be accompanied by a copy of the balance-sheet and profit and loss account of the year audited by an auditor.
It shall comprise besides other things changes in regulations of an exchange, if any; changes in the composition of the board, if any; any new sub-committees set up and changes in the composition of existing ones.
The report shall contain admissions, re-admissions, death or resignation of members; particulars of brokers disciplined and nature of offence/violation or default committed; arbitration of disputes (nature and number) between brokers and non-members; particulars of brokers who failed to meet the net capital and/or net worth balance requirements as specified; particulars of brokers declared defaulters; action taken to combat any emergency in trade.
POWER TO MAKE REGULATIONS: Subject to the prior approval of the commission, the exchange may make regulations pertaining to a number of matters, including constitution, powers and functions of the governing body of the exchange; qualifications for membership of the exchange; admission, suspension and expulsion of the members; disciplinary matters, including punishment of members; classification of members into categories; member's financial responsibility whether by way of minimum net worth, minimum capital or ratio between net capital or aggregate indebtedness, or all, etc.
AUTOMATIC CANCELLATION: A certificate of registration shall stand cancelled automatically if a broker to whom such certificate has been granted ceases to be a member of an exchange; is declared defaulter by an exchange and is not re-admitted to membership within a period of six months from such declaration; surrenders membership of an exchange; is declared insolvent by a court; voluntarily surrenders certificate of registration to the Commission; or is wound up by an order passed by a Court.
BROKER: Despite the refusal, suspension or cancellation of a certificate of registration, the broker shall be responsible for clearing all his obligations up to the date on which he has been working as broker.
A broker holding a certificate of registration shall maintain high standards of integrity, promptitude and fairness in the conduct of all his business. He shall act with due skill, care and diligence in the conduct of all his business.
He shall not indulge in manipulative, fraudulent or deceptive transactions or schemes or spread rumours with a view to distorting market equilibrium or making personal gains.
He shall not create false market either singly or in concert with others or indulge in any act detrimental to the investors' interest or which leads to interference with the fair and smooth functioning of the market.
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