ISLAMABAD, Feb 7: Securities and Exchange Commission of Pakistan (SECP) has enforced Suitability Rules for brokers to safeguard public interest, prohibit unfair trade practices and inculcate good governance in business conduct.

Aimed generally at ensuring that a broker does not engage in certain types of conduct in the Securities Market that are against the interest of the investor, SECP source told Dawn here on Friday, these rules would also support the commission’s efforts to strengthen institutional framework for minimising the potential of money laundering in the capital market.

Under the rules notified by the SECP in exercise of powers conferred upon it under clause (d) of sub-section (4) and clause (g) of sub-section (4) of section 20 of the SECP Act, 1997 read with sub-section (1) of section 220 of the Securities and Exchange Ordinance, 1969, the commission has directed the managements of all three stock exchanges as follows:

i. A broker shall provide brokerage services to an investor only after ensuring that an account has been opened in the investor’s name using an account opening form that is to be developed by the stock exchanges and approved by the SECP.

ii. A broker shall not recommend to an investor the purchase or sale of a security that is unsuitable given the investor’s age, financial situation, investment objective and investment experience. Investment in a particular type of security may be unsuitable for a given investor.

iii. A broker shall not guarantee investors that they will not lose money on particular securities transaction, making specific price predictions, or agreeing to share in any losses in the investor’s account.

iv. A broker shall not purchase or sell securities in an investor’s account without the investor’s approval, unless the investor has given written discretionary authority to effect transactions in the account.

v. A broker shall not trade on his own behalf or on behalf of his brokerage firm in preference to an investor by trading ahead of a limit order from an investor.

vi. A broker shall not remove funds or securities from an investor’s account without the investor’s prior authorization.

vii. A broker shall not purchase or sell a security while in possession of material, non-public information regarding an issuer.

viii. A broker shall not misrepresent material facts concerning an investment. Example of information that may be considered material and that should be accurately presented to an investor include: the risks of investing in a particular security; the charges or fees involved; company financial information or any other material information.