KARACHI: The Securities and Exchange Commission of Pakistan (SECP) has initiated a thematic review of leading brokerage houses of Pakistan Stock Exchange (PSX) to avoid any systemic threat to the integrity of the capital market, a senior official said on Tuesday.

“Leading brokerage houses are being reviewed with regards to financing, borrowing, lending, extension or maintenance of credit for the purpose of purchasing or carrying any security activity,” Hammad Javed, Joint Director, Stocks Securities Enforcement Division (SSED) at SECP, said.

The SECP, after collection of trading data from these brokerage houses, is conducting a detailed analysis. Based on the preliminary analysis, violations of the regulatory framework have been observed with serious concern pertaining to provision of illegal in-house financing to clients by these brokerage houses, and non-collection of due margin against exposure from clients.

“To protect investors and to avoid any systemic threat to the integrity of the capital market, the SECP will be taking strict legal action against all brokerage houses found involved in provision of illegal in-house financing to clients and non-collection of due margin against exposures,” Javed added.

Moreover, any other non-compliance identified would also be dealt with as per the law. The PSX has warned all Trading Right Entitlement Certificate (TREC) holders to refrain from indulging in such illegal activities, and ensure meticulous compliance of all applicable provisions of the regulatory framework.

An official said concrete measures were required to be put in place to reduce the gaps in enforcement and supervision by the exchange, and improve compliance by the issuers and intermediaries.

For this purpose, the SECP has already advised all the self-regulatory organisations (SROs) of the capital market, including PSX, to come up with an effective enforcement and compliance regimen. As a first step, the SROs have been asked to sort the penal provisions in their respective regulations, based on the nature of violations/non-compliances, severity of such violations, and the proposed corrective action to be taken in each case.

This would help deal with violations of the regulatory framework in an effective and appropriate manner, and would also act as a deterrent in future instances of non-compliances, the official said.

According to a study, in the most complete form of self-regulation, an SRO has the authority to establish rules of conduct for its members or participants and supervise compliance with, as well as enforce those rules.

A full-fledged SRO performs three main regulatory functions, including establishing rules/regulations governing the conduct of member firms and other regulated persons; supervising members and markets to monitor compliance with the said rules/regulations; and enforcing compliance with the rules by investigating potential violations and disciplining individuals and firms that violate them.


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