The Securities and Exchange Commission of Pakistan (SECP) on Tuesday informed the National Assembly Standing Committee on Finance that the Securities and Exchange Ordinance, 1969 (SEO 69) has to be replaced with the comprehensive modern law, encompassing all pieces of securities law under the umbrella of Securities Bill 2010.
In a presentation on the draft Securities Bill 2010 to the National Assembly Standing Committee on Finance, SECP officials said that at present securities market is being regulated by Securities and Exchange Commission of Pakistan (SECP) under the Securities and Exchange Ordinance, 1969 (SEO 69). The SECP feels that the law remains fundamentally incomplete, lacks proper and logical structure and suffers from numerous inconsistencies and gaps.
In order to remove the inconsistencies and gaps in SEO 69, to introduce international best practices and incorporate the International Organisation of Securities Commission principles of securities regulations it is important that SEO 69 should be repealed and replaced with a comprehensive modern and all encompassing piece of Securities law. Accordingly, for effective regulation of securities market, the SECP after detailed consultation with key stakeholders drafted the Securities Bill, 2010. The committee was further informed that the draft Securities Bill, 2010 consists of sixteen Parts, and one Schedule.
The brief description of each part is as follows:
i) Part I Preliminary: Part I deals with the commencement and applicability of the Act and contains the definition of terms used in the Act.
ii) Part II Securities Exchanges: Part II has detailed provisions relating to the licensing requirements, eligibility for licensing, grant of a licence and duties of a securities exchange. The Chapter has detailed provisions inter alia relating to the regulations of the securities exchange; approval of regulations of the securities exchange; review of disciplinary action taken by the securities exchange; Commission's powers to issue directions to a securities exchange; emergency powers of the Commission; suspension and cancellation of the license of a securities exchange; accounts and audit of the securities exchange and the Commission's power to appoint a special auditor for the securities exchange.
iii) Part III Clearing House: Part-III has detailed provisions relating to the licensing requirements, eligibility for licensing, grant of a licence and duties of a clearing house. The Chapter has detailed provisions inter alia relating to the regulations of the clearing house; approval of regulations of the clearing house; review of disciplinary action taken by the clearing house; Commission's powers to issue directions to a clearing house; emergency powers of the Commission; suspension and cancellation of the licence of a clearing house; accounts and audit of the clearing house; Commission's power to appoint a special auditor for the clearing house; proceedings of the clearing house to take precedence over the laws of insolvency and enforcement of judgements over property subject to market charge.
iv) Part IV Central Depository: Part-IV has detailed provisions relating to the licensing requirements, eligibility for licensing, grant of a licence and duties of a central depository. The Chapter has detailed provisions inter alia relating to the regulations of central depository; approval of regulations of the central depository; statutory obligations of participants and the Commission's powers to issue directions to a central depository; emergency powers of the Commission; suspension and cancellation of the licence of a central depository; accounts and audit of the central depository and the Commission's power to appoint a special auditor for the central depository.
v) Part V Regulated Securities Activities: Part-V has detailed provisions relating to the licensing requirements, eligibility for licensing, grant of a licence and duties of a regulated person. The Chapter has detailed provisions inter alia relating to the accreditation of representatives; powers of the Commission to impose conditions and issue directions to regulated persons and the maintenance of a register of regulated persons.
vi) Part VI Conduct of Regulated Securities Activities: Part VI has detailed provisions relating to the standard of business conduct; making of business conduct regulations; issue of contract notes; what constitutes short selling and the prohibition of a regulated person from commingle customer assets with own funds of the regulated person.
vii) Part VII Accounts, Capital Requirements and Audit: Part-VII has detailed provisions relating to the maintenance of accounts and records by a regulated person; the making of financial resource regulations; consequences for failure to comply with the financial resource regulations; monitoring compliance with the financial resource regulations; appointment of auditors by a regulated person and the Commission's power to appoint an auditor for a regulated person.
viii) Part VIII Public Offer of Securities: Part-VIII has detailed provisions inter alia relating to public offer of securities; publication and contents of prospectus; criminal liability for defective prospectus; compensation for false or misleading prospectus; abridged prospectus; issue of securities outside Pakistan; periodic financial reporting; disclosure of price sensitive information; powers of the Commission to require production of records and documents; remedy in cases of unfair prejudice by listed companies and publicly tradable companies: powers of the Commission to issue directions to listed companies and publicly tradable companies; duties of directors and others to disclose shareholding in listed companies and publicly tradable companies; notification to the Commission and listing exchange of directors' interests; duties of substantial shareholder to disclose their shareholding and the maintenance of a register of substantial shareholders by the Commission.
ix) Part IX Take-overs: Part IX defines take-over offers and states when companies are deemed to be related for the purposes of take-overs. This Part enables the Commission to make detailed regulations with respect to making and conduct of take-overs.
x) Part X Insider Trading: Part X has detailed provisions relating to the offence of insider trading. It explains who insiders are and what constitutes inside information and makes listed companies and publicly tradable companies responsible to disclose inside information.
xi) Part XI Other Market Abuses: Part XI lists the offences under the Act which include false trading and market rigging; market manipulation; fraudulently inducing trading in securities: employment of fraudulent or deceptive devices and the making of false or misleading statement to induce others to enter into securities transactions.
xii) Part XII Supervision and Investigation: Part XII deals with the supervision and investigation powers of the Commission. It empowers the Commission to call for information, conduct inspections and investigation and outlines the powers of the investigator in relation to investigations. The Part also makes an offence the destruction, falsification, concealment of any document which is relevant to an inspection or an investigation.
xiii) Part XIII Powers of Intervention by Commission in Relation to Regulated Persons: Part XIII empowers the Commission to intervene in the activities of the regulated person if it appears to the Commission that it is in the interest of the customer or public, the regulated person is not a "fit and proper" person to be a regulated person, the regulated person has contravened or failed to comply with any provision of the Act, any rule, or any regulation made under the Act or the regulated person has furnished information that is false, inaccurate or misleading. Under this Part the Commission may restrict a regulated person from business or prohibit a regulated person from disposing of his property or maintain property of such value as appears to the Commission to be desirable with a view to ensuring that the regulated person will be able to meet his liabilities in respect of his regulated activity. Further, if it appears to the Commission that the regulated person which is a company should be wound up under the Companies Ordinance, 1984 the Commission may present a petition for it to be wound up in accordance with the Companies Ordinance, 1984.
xiv) Part XIV Discipline of Regulated Persons: This Part empowers the Commission to take disciplinary action in respect of regulated persons and states the "fit and proper" criteria for regulated persons. The Part also deals with the effect of cancellation or suspension of license of a regulated person.
xv) Part XV Self Regulatory Organisations: This Part deals with registration of self-regulatory organisations; application for registration of self-regulatory organisations; the regulations required of an applicant for registration as a self-regulatory organisation; keeping and inspection of records and sanctions which the Commission may impose upon a self regulatory organisation.
xvi) Part XVI Miscellaneous: This Part contains provisions relating to indemnification; rights of applicants and holders of licences; standard of proof required to establish that a licensed person has contravened any provision of the Act, or any rule or regulation made under the Act: offences and penalties; powers of the Commission to impose financial penalties; process of appeals; mechanism for the enforcement of orders of the Commission; jurisdiction of the Courts; delegation of the Commission's functions or powers; liability of directors, etc, for offences by companies: liability of licensed persons for acts of representatives, etc; the regulation making powers of the Commission and the rule making power of the Federal Government; constitution of advisory committees; issuance of codes and guidelines; removal of difficulty: transitional provisions and repeals and savings; etc.
xvii) Schedule: The Schedule lists the enactments and the extent of their repeal on the coming into force of the law, salient features of the draft Securities Bill added.