There is a specialised market surveillance department at the Securities and Exchange Commission of Pakistan (SECP), to catch vigorously insider traders, front-runners and manipulators, said SECP Chairman Zafar Hijazi during an interactive session with journalists on Thursday.
He revealed that the department consists of dedicated team and is equipped with the latest gadgets and soft wares to continually monitor trading activity and keep analysing live trading data of Karachi Automated Trading System (KATS) of PSX.
Referring to the recent cases of insider trading by banks, he revealed that the surveillance team detected a number of cases of abnormal trading and prevented attempts to manipulate prices of shares at PSX. The SECP has zero tolerance against market abuse and any malpractice, and the purpose of this whole exercise is to provide transparent environment to the investors in the stock market, said Hijazi.
In an exclusive workshop organised by the SECP on Thursday, the SECP's team of investigators having expertise in detection of stock market and financial crimes and frauds directly interacted with media for the first time. The investigators briefed the process involved in tracking of insider-trading and front-runners and shared their experiences with recent examples. The identity of the stock market investigators was not disclosed due to sensitive nature of their work. However, the professionalism, dedication and experience of SECP's investigators were evident from the examples they quoted about recently detected and prevented frauds.
Usman Hayat, the head of Risk Management Department of the SECP said that the detected and establishment of insider trading or front-runner is a difficult and time taking task. However, he said, the SECP's investigations are based on authentic information supported by sound data and trading patterns of the alleged accused. Explaining the insider-trading, he said that the insider-trading occurs when a person by the virtue of his job has access to important information of a company or about its decision which may affect its share price and the insider personally or with the convince of his partners makes gains from stock exchange trading on the basis of that secret information.
He advised that the investors should make investments through mutual funds, managed by specialised assets management companies and it ensures that the investment is in safe hands. Moreover, Usman said that the investors must ensure that the concerned broker has opened their accounts in the CDC. Presently, there are over 50,000 accounts of investors in the CDC and not a single penny has been lost in the CDC, he added.
An investigator informed the participants about recently detected cases of insider trading in which officers of banks were involved. He shared the details and briefed how the trading patterns were matched with bank's investment related decision. He also described about new enhanced powers of the SECP in the newly promulgated Securities Act.
In some cases, the share volumes are moved artificially to increase or decrease prices, which is called manipulation in scrip, briefed another expert. To detect manipulation, live trading data of PSX is analysed continually. The investigator mentioned trading details in the scrip of Gohar Engineering when a group of individuals artificially manipulated the prices, saying the SECP has recently filed a criminal complaint against the involved persons in a court of law.
To a question, the officials responded that the SECP is conducting a comprehensive scrutiny to find out the system lapses to control and minimise misconduct, market abuse and financial crime in the regulated sectors under its jurisdiction. In cases of recent broker's default, a common phenomenon is that they were bluntly cheating their clients and maintaining double accounts, one for their clients and other for the regulators. In some cases, brokers do not open sub-accounts of their investors with the CDC and were offering them fixed profits on their deposits. The brokers get benefit of investors' greed and ignored the fact that their broker is not following legal formalities. It is difficult to investigate cases where basic information is not available with the broker or his client, the investigators briefed.
The SECP officials found some brokerage houses are engaged in the illegal activities of raising deposits from the public/investors against promise of fixed rate of return under the umbrella of stock market investments. It was agreed that that the said activities of brokers are illegal and tantamount to defrauding the public. Investors and the public should be cautious of these illegal activities and should not engage themselves or become a party to any such illegal investment activities. The investors/general public should not give deposit to any broker by whatever named called, as the same is illegal and any claim in respect of such illegal deposit would not be considered/entertained by the stock exchange as the same is beyond the scope of legitimate capital market activities.
An SECP official, who detected an illegal brokerage house in district Rahimyar Khan, shared his experience. The SECP had received an anonymous complaint alleging operation of illegal brokerage house. The accused persons were illegally engaged in the business of broker agent while impersonating the representative of two brokerage houses for fraudulent activities and were defrauding the public through deception, fraud, and false representations in sale and purchase of securities. On receipt of the complaint, the SECP made initial probe through its officer and found substance in the compliant. Therefore, in exercise of its powers vested under section 139 of Securities Act, 2015, read with all the enabling provisions of the SECP Act, 1997, the SECP ordered investigation. Keeping in view the sensitivity of the matter and to protect investors and the public, the SECP, on an urgent basis, dispatched the investigation team from Islamabad under supervision of a senior officer to take necessary action. The investigation team reached Rahimyar Khan, and after obtaining search warrants from relevant magistrate raided the premises, where illegal broker-agent business was being conducted. The raid was conducted with the assistance of local administration and police officials and the SECP team seized all relevant record and data pertaining to unlawful activities and sealed the premises.
A criminal complaint was filed with the NAB to ensure recovery of the amount of investors.
Another SECP official said now the SECP investigation powers have been increased and even they have to guide the sessions judges about their vast powers of enforcement and prosecution.
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