Chairman Securities and Exchange Commission of Pakistan (SECP) Zafar Hijazi has categorically said the SECP is thoroughly investigating the affairs of the 5 to 6 brokerage houses, that have overexposed their investments. Chairman SECP Zafar Hijazi, Chairman Pakistan Stock Exchange (PSX) Munir Kamal and Managing Director PSX Nadeem Naqvi were addressing a joint press conference here at SECP head office on Tuesday.
Zafar Hijazi said the investor protection would remain the prime objective of the regulator. He said the regulator would ensure complete compensation to small investors.
Without disclosing the names of brokers under investigation, the SECP chairman said the SECP has started market intelligence to unearth unregistered brokers involved in fraudulent activities. The SECP is in the process of monitoring of brokerage houses. The SECP has provided an opportunity to these 5 to 6 brokerage houses to correct their affairs and warned them to improve their working and honour their liabilities.
He said that there are five brokers under strict observation of the SECP and warnings have already been issued to the brokers who have overexposed their investments. The SECP conducts off-site and on-site inspections and in more sensitive cases the inspections are done by the joint inspection team of CDC, NPCCL and PSX. As the market touched new highs, a fresh wave of investors has entered the market and some brokers have started deposit taking and are offering fixed profits to investors which is illegal, he explained.
After detection of fraudulent cases, the SECP does not have to arrest people power. The cases are either referred to the Federal Investigation Agency (FIA) or NAB. "We will not stop and continue our action against the illegal brokerage houses," he remarked.
Zafar Hijazi said the SECP has also started operations for doing market intelligence. This is to check brokers if they continue their wrongdoings despite warnings. He also suggested the PSX to adopt the market intelligence methodology to monitor brokers'' behaviours.
The chairman said the SECP''s regulatory enforcement is a continuing process and only today he has referred a case to NAB for investigation. To a question, he confirmed that the SECP has already forwarded the names of defaulting brokers to relevant department to place them on exit control list (ECL).
The SECP chairman categorically said that after the incident of MR Securities, a Lahore-based stockbroker, the mindset of the commission has now been changed and it will continue to take action against the brokers involved in illegal activities. The SECP has already forwarded 12-13 cases of brokers to the NAB. The SECP chairman informed the media that over the period, nine brokers were declared defaulters, out of which 100 per cent payments have been made to claimants of four brokerage houses and 77% payments have been made to other claimants. He further explained that a total 3,453 complaints were received against these nine defaulting brokers out of which 2,453 (76.8%) complaints were settled completely. In this regard, Rs 689 million have been paid to the claimants. He also stated that 100% payments were made to small investors who have invested up to Rs 100,000. These payments have been made from the recoveries made from defaulting brokers as well as from the investor protection fund. To a query, Zafar Hijazi stated that the SECP will advise investors to avoid working with the illegal or unregistered brokerages houses and always check account opening form to secure their investment. If the investor is not well aware of the stock market regulations, they should invest through the Mutual Funds.
About the SECP action against brokers involved in deposit taking, the chairman said that in the past there were apprehensions about the deposit taking by some stock market brokers, but its visible evidence has now been available. Earlier, when the SECP directed the brokers to explain whether they are involved in deposit taking from investors, all market brokers said that they are not involved in such activity. "The market was in a denial mode in response to queries of deposit taking." However, when show cause notices were served, some brokers involved in deposit taking activities have admitted this in their response.
During the press conference, PSX officials expressed their satisfaction over the stock market working, strength and fundamentals. Zafar Hijazi said the capital market is strong, stable and on the right track, therefore the investors should not lose confidence due to wrongdoings of a few persons. He said the regulatory and oversight bodies are vigilant and proactively engaged with brokers who are vulnerable. He said the SECP has adopted a methodology to conduct at least one audit of each broker in a year. There are about 400 brokers registered at PSX.
In response to a question, the SECP chairman lauded the Chairman Senate Committee for Finance and Revenue, Senator Saleem Mandviwalla for taking interest in the ongoing issues of capital market and termed it a good gesture of the legislative body. Hijazi said the SECP team will appear before the Senate committee to explain the realistic situation and SECP''s point of view. Hijazi was very optimistic that Senator Saleem Mandviwalla will appreciate the regulator''s efforts for bringing transparency in the market. Zafar Hijazi said that SECP''s current actions look stringent and strict because the regulators have not taken such proactive approach before.