This is with reference to Khalil Ahmed's article "The problem with capital markets" carried by Business Recorder on April 27, it is important to note that the segregation of client assets is a crucial prerequisite for investor protection and any lapse in this regard can lead to misappropriation of investor assets and loss of investor confidence. No change has been made in the regulatory framework and the requirement for ensuring segregation of client assets has been part the regulations since 2009.
Accordingly, as a part of the process for monitoring compliance with regulations, Karachi Stock Exchange (KSE) required its Trading Rights Entitlement Certificate Holders to ensure compliance with the requirement to segregate cash balances of their clients. It also needs to be corrected that there has been no abrupt action by the KSE or the SECP in this regard, and TREC Holders were provided with appropriate time to demonstrate compliance with the relevant regulations from the outset. Monitoring compliance with the requirement to segregate client assets is an ongoing process and there no question of postponing it.
It also needs to be clarified that the KSE Board comprises of 4 TREC Holder directors, who are elected by the brokers, and 6 SECP nominee directors, who have been appointed to provide the KSE with a governing body with diverse experience and expertise. The SECP has prescribed stringent fit and proper criteria for the directors of stock exchanges, which is followed while constituting the board. The SECP directors are barred from indulging in day-to-day trading and under the fit and proper criteria must disclose their portfolio at the time of joining or whenever there is any change in the holding. And the stock exchanges have adopted the Code of Corporate Governance with the aim of following the best corporate governance practices.
It is also pertinent to mention that the account opening process for the capital markets and the know your customer (KYC) requirements are prescribed while taking into account the recommendations of Financial Action Task Force (FATF). The FATF recommendations have been universally recognised as the global anti-money laundering (AML) and count-terrorist financing (CFT) standard and are followed by all jurisdictions while developing their AML/CFT frameworks. The account opening form is also being reviewed for refinement and removal of any duplications and ease of process. The SECP is also in discussion for introducing one account opening form that will do away with the need to have separate processes at the CDC and broker level to ensure KYC process is not be duplicated.
In addition, a concept of global inspection regime has been conceived whereby joint inspection team comprising resources from all exchanges, CDC and NCCPL will inspect broker annually rather than the three institutions doing independent inspections that will reduce the cost aspect on the brokers.
It is also worth mentioning that the SECP has issued the revised Book Building Regulations for public comments and the final regulations will be implemented shortly which will ensure transparency and refinement in the IPO process. In addition, the SECP has taken notice of any complaints received in respect of book building process and has instructed KSE in recent past to conduct investigations in the book building process and identify any malpractices.
It is also worth mentioning that the SECP has initiated a comprehensive investor awareness program to inform investors regarding the basic modalities of capital markets, major risks and the safeguards available for investor protection. Also to enhance market outreach and increase the investor base, the SECP, in collaboration with the stakeholders, is supporting the establishment of capital market business hubs which will provide financial products and other services to investors under one roof.