ISLAMABAD: The Securities and Exchange Commission of Pakistan has put an embargo on stock market brokers disallowing them to work with outsiders – like marketing agents and freelancers – working for a commission or a fee from clients other than those possessing SECP’s valid registration or license.
To this effect, the SECP has issued a circular, 25 of 2017, here the other day to the Pakistan Stock Exchange (PSX) with a copy to Central Depository Committee, National Clearing Committee and the head of Oversight Committee and CEOs of all authorized brokers.
The circular notes that during the SECP’s onsite inspections of brokerage houses, some brokers were found to be operating through persons in the name of freelancers/marketing agents/introducers to seek clients and promote their business. These brokers were neither licensed as an agent of the broker nor were their business places approved as a branch office of the brokerage. “These persons are referring clients to the broker, purporting as an agent of the broker, trading on behalf the clients, receiving trade confirmations on behalf of clients, providing fee/commission based services to the broker etc. These persons are thus performing the functions of an agent, which is a licensed activity under the Securities Act, 2015 (“the act”).”
The prevailing regulatory framework, the circular notes, prohibits the brokers to operate from an unregistered location and deploy a person not registered or licensed as an agent with the SECP. This act of the brokers is in “contravention of the Act, Brokers and Agents Registration Rules, 2001 (“Broker Agent Rules”), Securities Brokers (Licensing and Operations) Regulations, 2016 (“Brokers Regulations”) and Pakistan Stock Exchange Rule Book (“PSX Rule Book”).”
The circular further notes: “to protect public interests and customers, the Commission in the exercise of the power conferred upon it under Section 71 (1) (a) of the Act, hereby directs all the brokers to comply with the following:
“One, the brokers shall not deploy/allow or work with any person by whatsoever name called and in whatsoever manner who provides fee/commission based services to such broker unless such persons are having valid registration/license as an Agent issued by the Commission.
“Two, the broker or its agents shall not operate from any office/location other than the registered office of the broker and branch office of the broker registered with PSX under branch office regulations of PSX.
“Three, access to the trading terminals by a broker shall only be given to its registered/licensed agents. No client shall be given access to the trading terminals of a broker.
“Four, if any broker deploys/allow or work with any person who performs the activities of an agent without obtaining registration/license from the Commission, such person shall be considered as an unauthorized/illegal agent/of a broker and his office shall be considered as an illegal branch of a broker.
“Five, if any broker or its agent is found to be operating from a location/office not registered with PSX, such location/office shall be considered as an illegal branch of a broker.”
While the circular has been enforced with immediate effect, SECP has sought information with regard to non-compliance. However, any broker who was “in non-compliance with the aforementioned requirements at the time of issuance of this circular shall immediately report the non-compliances in writing and make compliance with this circular within 30 days from the date of issuance of this circular.
“All brokers have been required to ensure meticulous compliance with this circular in letter and spirit. Any violation or circumvention of the directions contained in this circular shall be dealt with under the provision of the act. Explanation: The term “person” shall include an individual, a Hindu undivided family, a firm, an association or body of individuals whether incorporated or not, a company and every other legal person,” the SECP added.
