The Securities and Exchange Commission of Pakistan (SECP) is floating an idea of establishing a 'Securities Investors Protection Corporation' for safeguarding general investors of the stock exchange and to ensure timely payment of their claims in cases of brokerage houses default.
Sources told Business Recorder here on Wednesday that the practicable idea of the 'Securities Investors Protection Corporation' has been taken from the USA where the corporation has been successfully working for the protection of investors. In this connection, the SECP has started a consultative process with Karachi Stock Exchange (KSE), Lahore Stock Exchange (LSE) and Islamabad Stock Exchange (ISE) here on Wednesday.
Through video conferencing facility, the SECP officials from Karachi shared the idea with the LSE and ISE. It is a very unique concept in Pakistan to set-up a uniform platform for investors like SIPC Pakistan on the pattern of the SIPC USA. The basic idea behind the creation of the SIPC is to have a national fund for handling investor's claims against the defaulted brokerage houses.
At present, every exchange has its own investor's protection fund to handle complaints of the investors. Under the new idea, all the exchanges could have a uniform corporation on national level to handle cases of investor's complaints and their claims against the defaulted brokerage houses.
The SECP will take basic input on the establishment of the SIPC from all the three stock exchanges and legal backing for creation of such corporation in Pakistan. According to sources, the SIPC USA becomes active when a brokerage house defaulted. It take-over the brokerage houses and handles the whole process of the default for early payment of investor's claims.
The cash and securities -such as stocks and bonds - held by a customer at a financially troubled brokerage firm are protected by SIPC USA. When a brokerage firm is closed due to bankruptcy or other financial difficulties and customer assets are missing, SIPC USA immediately take steps within certain limits, works to return customers' cash, stock, securities and other customer property. Without SIPC, investors at financially troubled brokerage firms might lose their securities or money forever or wait for years while their assets are tied up in court. The SIPC USA has made recovery of $117.5 billion in assets for an estimated 767,000 investors.
Sources added that the SIPC USA is the investor's first line of defence in the event a brokerage firm fails owing customers' cash and securities that are missing from customer accounts. From the time Congress created it in 1970 through December 2011, SIPC has advanced $1.8 billion to make possible recovery of $117.5 billion in assets for an estimated 767,000 investors. Although not every investor is protected by SIPC, SIPC estimates that no fewer than 99 percent of persons who are eligible have been made whole in the failed brokerage firm cases that it has handled to date.
In a failed brokerage firm with accurate records, the court-appointed trustee and SIPC USA may arrange to have some or all customer accounts transferred to another brokerage firm. Customers whose accounts were transferred are notified promptly and then have the option of staying at the new firm or moving to another brokerage of their choice.