The Securities and Exchange Commission of Pakistan (SECP) imposed a hefty fine on Karachi Stock Exchange (KSE) managing director, deputy managing director and the exchange itself on the plea that they have been lenient to the TREC Holders. The order was put on website and consequently the front line regulator has remained in news for more than a week. The move seems to be part of the SECP efforts to get recognised as an assertive regulator of equity and financial market.
However, people familiar with the matter say that the SECP has been guilty of recklessness in prioritising sensational stories almost irrespective of the harm the stories may cause. Some experts have criticised the SECP for subduing and ridiculing its own arm, the front line regulator, and its top bosses in the eyes of the regulated. They want to hold the regulator and its media teams accountable for confidential information about stock market fine being leaked.
The experts also have questioned the wisdom of the regulator on hammering honest people. The experts go on extent of saying that our regulator has become chief market abuser, all in the pursuit of PR. That is why Nadeem Naqvi, the MD, KDE, was pursued so relentlessly in the ultimate victimless crime.
The sad part of the incident is the man who had more or less single-handedly reshaped the composition of the KSE 100 index, has been unreasonably identified with the SECP inquiry in the media and it might have terrible implications for his reputation, particularly in the internet age, the experts add.
Usually, the SECP does not comment publicly on whether they are looking at a matter until it has started a civil or criminal action, but unusual haste in this case has affected the image of the country's best financial regulator and it faces an existential threat now. One feels sympathy for the SECP. But then, the hole in which it finds itself is of its own digging.
The failure to have appropriate enforcement and media policy really created a situation where the Commission's higher-ups use the enforcement and media tool at their disposal for punishing their financial rivals. The need is thus for the SECP to promulgate and implement an effective communication policy to bring transparency in dissemination and publication of information. The SECP should encourage an open and candid two-way communications between employees at all levels and it should make sure that in order to spice up its enforcement actions report, it does not resort to sensationalism. The country's financial and equity regulator should also adjust its policy to ensure that the public understands clearly how it is scrutinising the stock market.
The regulators all over the world have well-defined dissemination policies and they prefer restrain over publicity and so often they get grilled over violations. A recent example is the case of Martin Wheatle, the FCA Chairman, who was reprimanded over his announcement about insurance probe.
The insurance industry attacked the FCA after the watchdog gave out incorrect information about an investigation into the sector. George Osborne, the Chancellor of the Exchequer also intervened to grill the regulator and urged disciplinary action against staff on willful misconduct.
Similarly, the Australian Securities Investment Commission has announced to keep a closer eye on how stock market listed companies handle the release of information which can affect their share prices. The move comes after an ASIC review of market-sensitive leaks to the media last year. While it is heartening to see that regulators all over the world are becoming more answerable to their critics, but it seems, we live on some distant planet where our regulators have the licence to ruin the careers of honest people and have unfettered freedom for rhetoric at the expense of action.
The SECP had been operational for nearly three decades and it has established itself as one of the country's finest financial regulator, but its dissemination approach leaves much to be desired. A classic example of rhetoric at the expense of action has been Tahir Mahmood, chairman of the SECP, high-octane statement on stock market crash recently, which prompted a fierce debate among academics and policymakers. Being a member of consummate bureaucracy it was expected from him to discuss the subject with great care and sensitivity, but he miserably failed to impress the accomplished experts.
Consequently, they raised their concerns about the capacity of the SECP to avert the crises as its past record leaves much to be desired. There is a seeming inevitability about how this debate would evolve. Even if the steps are taken to avert the crisis, it is important to understand, according to experts, that the best conceived and executed plans leave open the possibility of failure. Hence such sweeping statements of the regulator might attract the wrath of the investors when they would fail to get the desired results, added people familiar with the matter.
The experts note that practice of making public the confidential information about companies and individuals that are being investigated or fined by the regulator should also be discouraged. As it may adversely affect market stability, the experts add. In order to avoid such slip it seems an obvious step that the SECP should have documented policies to establish the standards of behaviour and procedures for dissemination and there should be a clear allocation of responsibility for overseeing these policies and procedures and the effectiveness of the policies should be reviewed regularly.
The experts urge the SECP to have written policies and procedures on how a suspected leak is to be investigated and employees are to be made aware that such a process may be undertaken, as according to them, such practice would act as a deterrent to employees who may otherwise be tempted to misuse the confidential information. To conclude, I would like to say that SECP should not be allowed to mess it up with the careers of people otherwise its arrogance would lead it to a disastrous misjudgement.
(The views expressed in this article are not necessarily those of the newspaper)
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