Appellate bench rejects legal opinion of SECP commissioner

A two-member Appellate Bench of the Securities and Exchange Commission of Pakistan (SECP) has rejected the legal opinion of SECP Commissioner (Securities Market Division) that renewal of registration of the Trading Rights Entitlement Certificate (TREC) holder had nothing to do with the regulatory requirements of filing of quarterly and half yearly returns.
Through a latest order, the SECP Appellate Bench has made these observations while reducing penalty from Rs 400,000 to Rs 200,000 on the TREC holder. According to the SECP Appellate Bench, the Commissioner SECP held that the TREC holder had not filed (i) the quarterly financial data through Financial Reporting System (the FRS), (ii) bank account details and (iii) half-yearly and annual accounts and the Appellant and, therefore, had failed to discharge its regulatory obligations.
The Commissioner (Securities Market Division) in exercise of the powers under section 150 of the Securities Act, imposed a penalty of Rs 400,000 on the Appellant company. The TREC holder was directed by the SECP Commissioner (Securities Market Division) to file all overdue financial returns through FRS and bank account details along with a hard copy of its annual account.
The TREC holder preferred the instant appeal before the Bench on the grounds that the Commissioner failed to take into account the fact that the TREC holder was not required to file quarterly financial data through FRS and submit accounts, since the registration of the Appellant as a securities broker, had expired on 26/08/16. The TREC holder argued that they were neither eligible nor had applied for renewal of registration and were not carrying out any regulated securities activities as defined in section 63 of
the Securities Act, therefore, provisions of section 63 of the Securities Act were not applicable on the TREC holder.
SECP Commissioner (Securities Market Division) rebutted the arguments of the Appellant (TREC holder) on the grounds that the Commission vide Circular directed all TREC holder/brokers to submit their financial information through online FRS. Furthermore, the SECP Commissioner (Securities Market Division) argued that the TREC holder was always deemed/licensed under section 177(3) and l 78(2)(e) of the Securities Act and filing of quarterly financial data through FRS and filing of half-yearly and annual accounts with the HOD-SSED is not linked with the renewal of registration.
The SECP Commissioner (Securities Market Division) contended that the Appellant, therefore, was required to comply with the requirements of the aforementioned circular.
The SECP Appellate Bench observed that we have heard the parties. "We do not concur with the SECP Commissioner (Securities Market Division) that renewal of registration of the TREC holder had nothing to do with the regulatory requirements of filing of quarterly and half yearly returns.
Section 177 of the Securities Act provides, "(3) A person who, immediately prior to the commencement of Part V of this Act, is registered as a broker under section 5A of the Securities and Exchange Ordinance, 1969 , shall be deemed to be licensed under this Act as a securities broker till the time his existing certificate of registration remains valid and shall thereupon be required to obtain a licence under this Act and such person shall also be allowed to effect transactions in futures contracts until such time as it may be required to obtain a separate licence as a futures broker."
In the instant case, the TREC holder was not a deemed licence holder at the time of issuance of SCN on 20/03/17 as their licence had expired on 26/08/16 nor had they applied for renewal of licence.
The bench is of the view that the TREC holder had to meet the regulatory requirements of filing the quarterly financial return through the online FRS for the quarter ended 30/06/16 and hard copy of annual returns for the period they held a valid licence, i.e, until 30/06/16, however, after the expiry of their licence they were not under any obligation to file details of their bank accounts and returns for the period 30/09/16 and half yearly accounts for the period 31 /12/16. We have reviewed the documents and observed that the TREC holder has filed the returns for the period 30/06/16 on 05/12/19 through electronic filing but still no hard copy has been filed to date, SECP Appellate Bench added.