KARACHI: The Pakistan Stock Exchange (PSX) has said it received a total of 485 claims, amounting to Rs1.2 billion, against the recently defaulted broker, M.R. Securities.

It also disputed rumours about the number and amount of claims. The PSX conveyed this information to a full bench of the Securities and Exchange Commission of Pakistan (SECP) in a meeting on Tuesday.

The PSX board shared findings and recommendations of an internal enquiry into the recent broker default and the role of the chief regulatory officer (CRO) of the exchange in timely detection and reporting of the same, the PSX said in a statement.

Suspends chief regulatory officer pending an enquiry

The board decided to suspend the CRO pending an enquiry.

The PSX release stated the SECP chairman emphasised the need for implementing reforms for investor protection in a forceful and timely manner.

In order to strengthen the capacity of the PSX as a frontline regulator, the exchange agreed to put in place a stronger inspection regime for brokers. It also agreed to establish a national level brokers’ association as a self-regulatory organisation under SECP Act 1997.

In line with international best practices, the mandate of that association should, inter alia, include formulating the necessary code of ethics for its members and instituting disciplinary policies/procedures for non-compliances of relevant regulatory framework.

“The SECP communicated that considering risk to investor arises substantially through custody of clients’ assets with brokers, not all brokers should be allowed to keep custody of clients’ assets, which the PSX agreed,” the press release said.

The PSX board informed the SECP that out of five broker defaults post-2008, all pending claims against three brokers will be fully satisfied through the sale of their assets, which is in progress. There were pending litigation cases against the other two brokers. The SECP advised the PSX to provide fortnightly updates on all pending cases to the commission.

The PSX was further directed to expedite the implementation of regulations relating to the standardisation of the brokers’ back office software as advised by the SECP previously, which could have played a critical role in avoiding the recent broker defaults.

The SECP stressed upon the PSX to introduce stringent requirements for opening and operating branch offices by brokers as well as strict monitoring of such branch offices for regulatory compliance to ensure investor protection and discourage brokers from circumventing regulatory requirements.

The SECP chairman expressed his concern over some single-member companies acting as stockbrokers and directed the exchange to ensure all such brokers convert to a private or public company within the specified time period.

“This was essential to provide for necessary corporate setup, code of ethics, effective compliance framework and protection of clients’ assets,” the SECP chairman said.

Published in Dawn, February 15th, 2017