The Securities and Exchange Commission of Pakistan (SECP) has decided to develop code of business and legal framework to strengthen investment and detect prohibited trading. The decision was made after a committee formed by SECP gave its recommendations following an assessment of various aspects of front-running or insider trading, scrutinising policies adopted by various institutions.
The conduct for trading or investment is aimed at strengthening the regulatory and legal framework in order to detect and prohibit illegal trading practices. The code was intended to be implemented at all major institutions which actively trade in the stock markets, brokerage houses, non-banking financial companies, insurance companies, banks and development financial institutions.
The analysis from the committee has fully emphasised the importance of internal audit function to review the effectiveness of the control structure. Respective regulatory body or ministry of these institutions would be also taken on board for effective implementation of the code and control measures. The committee made recommendations in order to enhance the control structure of institutions and market participants in the areas of investment decision-making and execution of trade. That would include overseeing the trading activities of their employees as well.
The implementation of these recommendations would encourage and facilitate self-regulation by market participants and institutions to control and prevent unfair trading practices in line to augment the prime objective of the SECP to promote fairness and enhance efficiency in capital markets.
Transparency and fairness in capital markets is critical for protection of investors and enhancing their confidence. However, market abuses and unfair trading practices such as front-running or insider trading negatively affects this basic essence of the market. Front-running, a form of insider trading arises when a person engages in processing or making investment decision in his official capacity using that information for his personal benefit directly or indirectly. This undesirable activity usually takes place in institutions active in capital markets. These institutions either process investment orders of their clients like brokerage houses or manage their own or third party portfolio like banks, development finance institutions (DFI)s, insurance companies, mutual funds and pension funds. In these institutions investment order; decision of the client or of the institution itself could be front run by the person processing or taking investment order or decision. The basic purpose of front running is to take advantage of the price movement caused by the large trading order once it is executed in the market. The market monitoring and surveillance activities of the SECP highlight and identify such market misconduct, for which enforcement actions were taken and also placed on the SECP website.
Impressive effort by SECP
SECP must present periodic reports of its efforts to all the stakeholders in order to enhance investor confdance as well as register performance.
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