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BMA Capital fined Rs50 million

February 20, 2013

The Securities Exchange Commission of Pakistan.—Logo

LAHORE: The Security and Exchange Commission of Pakistan (SECP) has slapped a hefty fine of Rs50 million on a Karachi-based brokerage house for indulging in unfair trade practices to make huge profit of Rs46 million in a matter of just a few days at the expense of its clients.

It is for the first time that the commission has imposed such hefty fine on a brokerage house. It has also instructed the brokerage house, the BMA Capital Management, to deposit the fine within 30 days of the issuance of the order on Feb 19.

The SECP order shows that the BMA had purchased 578,000 shares of Bata from the National Bank of Pakistan (NBP) on Aug 24 last year in the off market at a negotiated price of Rs920 in its proprietary account.

The shares were purchased at a premium of 16.6 per cent. The share was being traded at Rs789 on Aug 17 the day negotiations for the deal were initiated.

On Aug 29-30, the BMA sold 587,500 shares of Bata to a foreign investor, BAFIN (Nederland) B.V., an associate company of Bata Pakistan, at the negotiated price of Rs1,000 a share in off market, amassing a profit of Rs46 million.

Forensic analysis of the two deals by the commission and a subsequent inquiry into the matter revealed that BAFIN was maintaining a trading account with the BMA since July 2011 and was trading only in the shares of Bata.

BAFIN had already accumulated 562,366 shares from the ready market and off market since its opening of the account with the BMA, which was aware that it would buy more shares if given an offer at an agreed price.

In its reply to the show cause issued by the commission, the BMA denied having violated any law or rule by conducting proprietary trade. It further said that BAFIN was fully aware of it deal with the NBP and agreed to purchase the shares at the negotiated price of Rs1,000 a share.

However, according to the SECP order, it failed to produce any documentary evidence to support its assertion. In fact, the order adds, in its first reply the BMA had admitted that BAFIN had instructed it to negotiate with the NBP (to purchase Bata shares from it) at a lower price. But later changed it stance, insisting that it had acted as an independent buyer and seller and not as an “agent of the third party” while closing the deals with the NBP and BAFIN.

The commission also notes that while making the deals the BMA had failed to disclose if it was acting as a principal or as an agent and gave preference to its own interests at the expense of the NBP and BAFIN.

It said the profit raked up by the BMA was the loss suffered by either the NBP or BAFIN. The commission said it was established that the BMA had failed to fulfil its primary responsibility of following best market practices while executing the transactions and to safeguard the interest of its clients.

It was the duty of the BMA to avoid the conflict of interest and in this particular case the BMA failed to perform this duty by executing these deals and also to maintain high standards of integrity and moral values, the order said.