The Securities and Exchange Commission of Pakistan (SECP) has laid down additional conditions for applicants seeking licences for 'trading and self-clearing' and 'trading and clearing' categories at stock exchanges.
The draft of the Securities Brokers Regulations, 2015 issued by the SECP revealed that license for trading and self-clearing and trading and clearing categories shall only be granted to applicants which fulfil the following additional conditions: a) It is a public company; b) It is in compliance with all the conditions of the Code of Corporate Governance for securities brokers; c) It has been admitted as clearing member by the clearing house and a participant by the central depository; and d) At least one and preferably one third of its directors meet the criteria of independent directors as provided in the Code of Corporate Governance for listed companies.
The SECP said that a securities broker licensed for trading and self-clearing and trading and clearing categories shall ensure,- (a) filing of fortnightly statements of customers assets held with the securities broker and their reconciliation; (b) in the case of securities, balance of each customer should be reconciled with the balance as per CDS sub-account(s); (c) the reconciliation results are submitted to the central depository for verification and onward submission to the Commission; (d) that cash belonging to customers as per the records should be matched with the actual cash available in the customer bank account; (e) that the reconciliation should be submitted to the respective securities exchanges; (f) that they submit six monthly audited reconciliation statements where auditor have verified all the reconciliation statements submitted by securities brokers during the review period; (g) maintenance of its total assets under custody within 25 times of its net worth or any other threshold as specified by the Commission from time to time; (h) that the compliance officer or any other person fulfilling the criteria of compliance officer and dedicated by the securities broker for this purpose regularly monitors the customer assets, movements therein, and prepares reconciliations as required, draft regulations said.
In case any discrepancy is observed or any instance of unauthorised use of customer assets or any violation of law with respect to segregation and safekeeping of customer assets is observed the same must be reported to the securities broker for taking immediate remedial action. In case the securities broker fails to rectify the position within 3 days, the matter should be reported to the Commission and the relevant securities exchange(s); (i) that in case where the allowed quantum of assets under custody exceed Rs 1 billion, the securities broker, in addition to the compliance officer, also appoints a dedicated official, who may be called as the custody officer, fulfilling the criteria of compliance officer to ensure 7 segregation and protection of customers' assets including requirements of clause (h) above, and such person shall report directly to the board of directors of the securities broker; (j) that necessary steps are taken to keep its total assets under custody within the threshold specified by the Commission; (k) the establishment of systems and controls for maintaining accurate and up-to-date records of customers asset holdings including information specifying the amount, location, and ownership status of customer assets; (l) that the securities broker's records are maintained in a way that appropriately distinguish the customer assets account of one customer of the securities broker from that of another customer of the securities broker and from the assets of the securities broker itself; (m)to maintain insurance of assets of the customers held under its custody as specified by the Commission from time to time; and (n) the maintenance of minimum rating as specified by the Commission, issued by a credit rating agency licensed with the Commission.
The SECP has proposed that the Commission, while considering the application for granting a licence, shall inter-alia take into account the following matters, - (a) That the applicant meets the requirements of the Act and these regulations; (b) That the applicant has the ability to efficiently handle its functions as a securities broker and its obligations under the Act and these regulations; (c) That the applicant has the necessary infrastructure including but not limited to adequate office space, equipment, experienced manpower and technical aspects, financial resources, policies, procedures, systems and controls to effectively and efficiently discharge its responsibilities as a securities broker; (d) That the applicant satisfies the Commission that the reasons for an earlier refusal for grant of licence, if any, as a securities broker are no longer applicable; (e) Involvement of the applicant, its sponsors, directors or senior management officers in an offence involving fraud or breach of trust; and (f) Any pending penal action against the applicant, its sponsors, directors or senior management officers for an offence under the Act, the Securities and Exchange Ordinance, 1969 or the Companies Ordinance, 1984.
The Commission upon being satisfied, after conducting such inquiries and after obtaining such further information as it deems appropriate,- (a) that the applicant is eligible for a licence; (b) the applicant is in compliance with the provisions of the Act, these regulations and any directives/guidelines/codes issued thereunder; and (c) it is in the interest of capital market; may grant a licence to the applicant in Form A under the provisions of the Act and communicate this to the concerned securities exchange(s). Provided that while deciding to grant licence to a securities broker, the Commission may seek additional information from other Government agencies/regulatory bodies including obtaining CIB Reports from the State Bank of Pakistan and may also conduct a pre-licence assessment or a visit of the premises of the applicant to verify the genuineness of information submitted:
Nothing in these regulations shall affect the power of the Commission to suspend or cancel the license of a securities broker under section 152 of the Act if any or all of the of the events as mentioned in the said section of the Act have occurred or the securities broker fails to comply with any of the requirements of these regulations, it added.