KARACHI, Jan 7: The Securities and Exchange Commission of Pakistan (SECP) on Friday issued a directive modifying the effective date of prohibition in use of group accounts by Central Depository System (CDS) participants.

The order issued by the SECP a day earlier, was probably little understood and was a contributing factor in an extremely volatile trading pattern witnessed on Friday.

The SECP directive to the Central Depository Company (CDC) that was issued on Thursday was to the effect that brokerage houses would not be able to use group accounts as the CDC for holding their client's shares from March 31, 2005. Clients would have to open their own sub-accounts under their brokerage house's participant account or else open their own independent Investor Account.

While the SECP set March 31, 2005 as the last date by which existing book-entry securities in the Group Accounts should be "transferred out of the group accounts by participants" only with due authorization in accordance with the requirements of law, the SECP put the other clause into immediate force (Jan 6, Thursday), which said: "No book entry securities shall be permitted to be entered by any person in the Group Account".

On Friday, the effective date of that clause was extended from Jan 6 to March 31, through a modification in the Commission's directive. That came as a relief to the investors, and the SECP was believed to have extended the date to avoid problems in the settlement of accounts.

Market participants generally agreed that the directive was a positive move. And The Chief Executive Officer of Central Depository Company of Pakistan Limited (CDC), Muhammad Hanif Jakhura said that CDC had always been persuading investors to open their own independent Investor Accounts.

He emphasised that the charges for opening the investor account were not exorbitant as was generally thought to be by an ordinary small investor, but in the nominal sum of Rs1500 per year.

Mr Jakhura emphasised that it was not a major issue, since the group accounts comprised just 7 to 8 per cent of the total 14.3 billion shares held by the CDC.

In the Thursday's directive, the SECP had put forth a long list of reasons for the move: "In order to prohibit unfair practices, to prevent misuse in the handling of book entry securities owned beneficially by the investors and maintained by the participants in the Group Account of central depository system, to inculcate good governance in the business conduct, to promote transparency and for investor protection in securities market and in the public interest", the SECP said it had issued the directive under the relevantrules and regulations.

A couple of veteran stock brokers commented that the implication of the directive was that it would block clients who were trading anonymously (benami) via their brokerage house's Group Account.

They would now have to register their personal information. Some people thought it could affect trading volumes at the time of implementation (March 31, 2005) but was not likely to have a major bearing on investor sentiments.

Smaller brokerage houses could have to take a minor hit, but the CDC MD, Mr Jakhura explained that it was a necessary step. One reason cited was that some brokerage houses used such shares to comply with the exposure requirements, without authority from the clients.

In case of a couple of defaults, CDC was hard pressed to identify the clients in the Group account. Now for sub-accounts with brokers and more preferably independent investor account, CDC would be able to trace the clients through ID cards and other personal details.