Violation of SECP rules: Karachi-based brokerage house told to pay Rs 500,000 penalty

The Securities and Exchange Commission of Pakistan (SECP) has imposed a penalty of Rs 500,000 on a brokerage house of Karachi Stock Exchange (KSE) for violation of rules and regulations of the commission. Sources told Business Recorder here on Thursday that the SECP issued an order against the First National Equities Limited under Section 22 of the Securities & Exchange Ordinance, 1969 read with Brokers & Agents Registrations Rules, 2001, imposing a penalty of Rs 500,000.
The shares of the FNEL are traded at the KSE. As a part of its mandate to foster a transparent and efficient capital market and to safeguard the investors' interest, the Securities Market Division (SMD) of the SECP plays a vital role to ensure the compliance of prevalent regulatory framework by the market participants.
As a measure to restrain any manipulative or abusive market practices, the SMD has adopted a stringent approach for surveillance of all segments of the stock market. In this regard, an Order was passed against a broker of KSE. Analysis of trading activity showed that FNEL was involved in the creation and execution of a scheme for the benefit of the subsidiaries of FNE Group, wherein the price of the scrip of FNEL was artificially inflated. More than 90% of the trades during the period under review were executed through the brokerage house of FNEL and the clients were Namco Balance Fund, First Florance Developers (Private) Limited and few of FNEL individual clients. Where, Namco Balance Fund is being managed by the Namco Asset Management Company, one of the subsidiary of the FNE Group. The referred trading activity resulted in substantial gain to the First Florance Developers (Private) Limited and transferring of loss to the same tune to the small investors of the Namco Balance Fund, sources added.
The SECP order said that it is established that the broker was involved in the creation and execution of the scheme in harmony with FED, Namco and its clients, with a view to distort the market and for personal gains. As provided in the Code of Conduct set forth under the third schedule of the Brokers Rules, it is the responsibility of the broker not to create false market either singly or in concert with others or indulge in any act that is detrimental to the investors' interest. Further generation of artificial volume interfered with the fair and smooth functioning of the market and created misleading impression for the investors.
According to the SECP's order, broker has failed to exercise due care, skill and diligence in conduct of its business and has also failed to abide by the provisions of the Rules & Regulations issued by the Commission and KSE from time to time, thus violated the Clause A (1), (2), (4) and (5) of the Code of Conduct set forth under the third schedule of the Brokers Rules, which in turn is violation of Rule 12 of the Brokers Rules read with Rule S of the Brokers Rules.
Expressing disappointment over the broker's 'very casual attitude' towards the Commission, the SECP order said that the hearing dates were rescheduled time and again on the request of the broker. The SECP said: "It is the responsibility of each and every market participant to play its due role to ensure that market is fair, efficient and transparent for the protection of investors and to reduce the systematic risk of the market, if any market participant does not act accordingly then it should be held accountable for that."