The Securities and Exchange Commission of Pakistan (SECP) has ordered the central depositary company (CDC) to terminate and suspend the membership of a number of ‘unregistered’ brokers and ‘invalid’ members working at the country’s three stocks exchanges. The regulator issued the orders after finding ‘certain anomalies’ in the CDC’s membership data in the Central Depository System (CDS).
“It has been observed that some CDS participants at the time of admission were members of the stock exchange(s) (hereinafter referred to as member participants)… at present do not hold valid membership of any stock exchange (hereinafter referred to as ex-member participants),” the SECP told the CDC and the KSE through a letter, SM/KSE/CDC/2011, on April 29.
In addition, the SECP said, there were a ‘number of member participants’ who were not registered with the Commission as brokers under the Brokers and Agents Registration Rules, 2001. The regulator referred to such brokers as ‘unregistered member participants’. “Terminate (the) admission of ex-member participants with immediate effect,” a KSE notice Friday quoted the SECP as ordering the CDC.
The commission also asked the CDC to suspend the admission of all unregistered member participants for a period of 60 days until they produce the SECP’s broker registration certificate (BRC). In case of non-compliance, the CDC shall terminate their admission, it added. The Securities and Exchange Ordinance, 1969 defining a broker as “any person engaged in the business of effecting transactions in securities for the account of others”, bars unregistered member participants from trading as a broker and open sub-accounts.
The SECP also asked the CDC to ensure that all new member participants shall not have the facility of opening and maintaining sub-account(s) under their umbrella without producing a BRC. “Until the implementation of standard follow-up procedures for dissemination of disciplinary actions against the members, the clearing members and the participants, wherein the same aspect had been covered,” it said.
The CDC regulations allow a member participant to open sub-account(s) under its umbrella for other investor(s). To address this issue, the SECP has asked the CDC to make suitable amendments in its regulations restricting the opening of sub-account(s) under the umbrella of an unregistered member participant. The members of the KSE, directors of SECP, managing directors of KSE, LSE and ISE, the CEO of CDC and the chief executive of National Clearing Company of Pakistan Limited were notified that the above orders would remain effective until the finalisation and implementation of the amended CDC regulations. When contacted, a stock broker at the KSE agreed that there may be some members who were brokering without first registering with the SECP.
