A securities broker shall not commence business with a customer unless the broker provides the customer with a risk disclosure document explaining the risk of higher volatility, risk of lower liquidity; speculative trading and systemic risk, etc.
According to the Securities Brokers (Licensing and Operations) Regulations 2016 issued through SRO569(l)/2016, the securities broker shall obtain a written acknowledgement duly signed and filled by the customer confirming that such customer has understood the nature and contents of the risk disclosure document. The securities broker shall take all reasonable steps including the framing of appropriate policies and procedures to minimise conflict of interest between such securities broker and its customers. Where any conflict of interest arises between the securities broker and its customer, the securities broker shall immediately inform the customer through verifiable means and not gain any direct or indirect advantage from the situation and shall act in the best interests of the customer.
The SECP has also explained the procedure for applying for a licence as a securities broker. No person shall act or perform the functions of a securities broker unless such person is licensed as a securities broker with the Commission in accordance with these regulations.
The securities exchange shall scrutinise the application for grant of licence and the documents submitted by the applicant prior to submission of the same for consideration of the Commission along-with a letter of recommendation. It said that a securities broker shall not publish, circulate or distribute any advertisement or any information which is false, misleading or deceptive.
The securities broker must take reasonable steps to ensure that neither such securities broker nor any of its employees or accredited representatives either offers or gives, or solicits or accepts, any inducement that is likely to conflict with any duties owed to the customers. The securities broker shall put in place a mechanism and take steps to avoid and eliminate the misalignment of incentives due to conflict of interest between the compensation of senior management officers, employees and accredited representatives of the securities broker and interest of the customers.
Financial Resources Requirement: An applicant for a licence as a securities broker shall comply with and ensure ongoing compliance with the specified levels of minimum paid-up capital, net worth and net capital balance. In case of eligibility criteria for licensing of a securities broker, a company may apply to the Commission for licence as a securities broker under anyone of the categories specified if the applicant's memorandum and articles of association allow it to apply for grant of licence as a securities broker under the Act and the applicant holds a valid TRE certificate issued in its name. There are other eligibility criteria for licensing of securities brokers under the said regulations.
A securities broker shall file monthly statements of net capital balance and liquid capital with the Commission and the securities exchange computed in a manner specified, immediately after coming into force of these regulations, and shall also submit an audited statement or net capital balance on half yearly basis. The securities broker shall start maintaining minimum liquid capital as per such amounts and/or ratios and after such period of time as may be specified by the Commission through notification. Upon such notification by the Commission, the securities broker shall be required to submit audited statement of liquid capital on half yearly basis, and the requirement to maintain net capital balance, the requirement to submit monthly Statements of net capital balance and the requirement to submit half yearly audited statements of net capital balance shall be discontinued.
A securities broker shall immediately notify the Commission and the securities exchange if the net capital balance and/or the liquid capital falls below Ole specified threshold and shall immediately submit the revised net capital balance and/or liquid capital calculations, the SECP added.
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