Lead forensic specialist David T Wolfe of Diligence has said that the 88 brokers including 13 leading brokerage houses/financial companies that may have breached the rules/regulations of Securities and Exchange Commission of Pakistan (SECP), but there is not enough evidence to allege them of market crash.
In an interview with Business Recorder on Tuesday, the forensic investigator said that the brokers made potential breach of some clauses pertaining to relevant rules. The brokers would reply to the show cause notices issued to them by the SECP. If the brokers have not complied with the law, the Commission is legally empowered to proceed against them. The brokers would be given a chance to prove that they have not committed violation of any law.
While strongly dispelling impression of taking SECP side, he said that some of controls now put in place at the stock exchanges should have introduced before the crises to avert some violations by the brokers.
He said that investigators did not find sufficient evidence to support the market manipulation as specified by the Task-force. "We are unable to gather sufficient evidence to support the alleged scheme's primary element (withdrawal of COT) that was ostensibly responsible for the steep fall in market prices. We find no unusual activity or credible evidence to support that certain influential brokers systematically and manipulatively inflated and then deflated market prices, reaping substantial profits in the process."
He said that the forensic investigators have submitted the final report to the SECP. As far as this assignment was concerned, the matter is over and findings have been submitted to the commission. The company has finished its present assignment in Pakistan. However, it is not yet decided that forensic investigator are needed anymore or not.
David said that there could be possible manipulations, which may be proved through SECP further investigation depending on the reply of brokers' notices to the commission.
Responding to a question on data collection, he said that there were data limitations. The collection of historical information was a difficult assignment. "We needed more information in some cases. But, now the introduction of reforms would help in regulations the broker's community properly.
The SECP has introduced the concept of Unique Identification Numbers (UIN) for all investors, which would enable the three exchanges and the SECP to easily identify the client behind any stock market transaction.
He said that three areas have been focussed on to carryout investigation on the market crisis. These are COT withdrawal, Wash Trade and futures contracts. The role of the forensic investigator was facts finding.
The investigator said that there have been violations of Section 17(a) of the Securities and Exchange Ordinance, 1969, relating to the wash trade. The manipulations by brokers related to violations of Clause 3(b) of the Regulations Governing Futures Contracts (exceeding Rs 50 million threshold) and Section 17(a) of the Securities and Exchange Ordinance.
Clause 3(b): It has prohibited a broker from having a net sale position in futures contracts of a particular scrip in excess of Rs 50 million without providing evidence that it held the shares sold above the threshold.
The question was whether the whole market was manipulated upward or downward. To put it together, there was need to analyse the COT withdrawal, Wash Trade and futures contracts during the personal inquiry.
About issuance of names before the National Assembly standing committee, David said that there was no intention to hide the names. We were hired to provide information to the SECP. It was the prerogative of the SECP to disclose the names of the brokers to the general public or not.
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