Centralised customer protection compensation fund: SECP proposes amendment relating to ongoing contributions

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has proposed revision in the procedure for making contributions to the centralised customer protection compensation fund for settlement of investors’ claims against defaulted brokers/brokerage houses.

The SECP has issued SRO 494 (I)/2021 for introducing a draft amendment to the Centralised Customer Protection Compensation Fund Regulations, 2017.

The SECP has proposed the amendment relating to the ongoing contributions made to the centralised customer protection compensation fund.

In case of ongoing contributions, it comprises allocation of one percent of the total revenue of the securities exchanges.

After the proposed amendment, the ongoing contributions would be allocation of such percentage as specified by the Commission (the SECP).

According to the Centralised Customer Protection Compensation Fund Regulations, 2017, the securities exchanges will provide a centralised customer protection compensation fund established and operated in the manner specified.

The securities exchanges shall, once every three years and/or as and when directed by the Commission, appoint an independent expert approved by the Commission to determine minimum size of the fund with the approval of the Commission.

Provided that the cost of independent expert shall be borne by the securities exchanges, the SECP notified.

The independent expert shall use a methodology approved by the Commission which may include stress testing, actuarial valuation or any other internationally-recognised method to enable determination of minimum size of the fund.

In case size of the fund is smaller than the minimum size determined or at any time falls below the minimum size, the securities exchanges shall, with the approval of the Commission, specify the amount and manner of replenishment of the fund, to meet minimum size of the fund, from TRE certificate holders, securities exchanges and such other persons as determined by the securities exchanges.

The fund shall comprise initial contributions consisting of amounts determined under demutualisation regulations to be transferred from trust funds for protection of customers, members or clearing houses, by whatsoever name called, of all the securities exchanges, which are licensed as securities exchanges on the date of commencement of these regulations; and ongoing contributions comprising of levy on the value of securities traded at the securities exchanges collected from TRE certificate holders as specified in the regulations of the securities exchanges; allocation of such percentage as specified by the Commission; fines, penalties, etc as may be collected by the securities exchanges under its regulations from any market participant in respect of non-compliance of regulations of the securities exchanges; any income generated from investments of the fund’s assets; any monies paid by an insurer under a contract of insurance entered into for the benefit of the fund; any contribution that has been received from any other person and any other source or amount as may be specified by the Commission from time to time.

It said that a customer may submit a claim to a securities exchange arising out of dealings with the defaulter as per the provisions of the Act, rules and any regulations made or direction or circulars issued thereunder.

The securities exchange shall, in accordance with its regulations, invite customer claims and after verification of such claims inform the customers of the decision to admit or otherwise the claims against the defaulter.

If the total amount of admitted claims is less than the amount realised by the securities exchange from deposits and others assets of the defaulter, the entire amount of admitted claims shall be paid and remaining amount, if any, shall be transferred to the fund.

In case total amount of admitted claims is more than the amount realised by the securities exchange from deposits and others assets of the defaulter, all the admitted claims shall be paid on pro-rata basis and the claims remaining unsatisfied after pro-rata sharing shall be paid from the fund by utilising up to such aggregate amount and in such manner as specified in the regulations of the securities exchange.

In case proceeds from the assets of defaulter are not immediately available, for any reason whatsoever, the Commission may in the interest of the customers, allow settlement of admitted claims first from the fund to the extent of the maximum amount permitted in the regulations of the securities exchange and any subsequent amount realised from the assets of defaulter shall also be utilised to settle unsatisfied claims of customers, if any and any unutilised amount there from shall be deposited in the fund.

The securities exchange shall make provisions in its regulations inter alia for making contributions into the fund, admission, verification and settlement of claims and utilization of the fund as provided in the rules and these regulations.

The securities exchange shall maintain a database of all customers whose claims have been paid from the fund in the format as specified in its regulations.

A summary showing opening balance, contributions made to the fund, utilisation of fund and closing balance shall be disclosed by the securities exchange at its official website and in its annual report, the SECP added.

Copyright Business Recorder, 2021