ISLAMABAD: Despite the promulgation of Securities Act 2015, declaring insider trading a criminal offence, the Securities and Exchange Commission of Pakistan (SECP) has failed to register major cases against any criminals and violators of the law.
Sources said that though the law exists to discourage criminals especially the high officials in the organisations who usually trade in shares and use insider information to bag huge profits, insider trading is still a huge problem. However, despite having clear law and rules regarding ‘inside information’ and ‘insiders’, false trading and market rigging transactions, market manipulation and other kinds of fraudulently inducing trading in securities, i.e. employment of fraudulent or deceptive devices (schemes) and false or misleading statement inducing securities transactions, SECP, during the past three years has not taken action against any major violators of the law.
Official sources at SECP claimed that the commission, since the promulgation of the law, has taken action against 1259 violators of the law. “There are different categories for treating the violators. Few major cases have also been reported during the past three years,” they said.
According to documents available with Pakistan Today, administrative action was taken in 74 cases of insider trading and 593 brokers’ cases by SECP. Out of the 25 criminal complaints received by the SECP, 12 cases were related to market manipulation, 7 cases of non-transfer of shares and nonpayment of funds to investors, 4 cases of insider trading and each one case of false statement and induce investors and book building regulation.
The official documents show that penalties were imposed against 237 brokers while warnings were given to 242 brokers at stock exchange so far. Moreover, licenses of 35 brokers were cancelled, four licenses suspended and issuance of 60 licenses were refused for violating the set rules.
In the 10 cases of administrative action under Book Building Regulations-2015, SECP has imposed penalties against 4 violators meanwhile 6 offenders were given a mere warning. Under the Listing Reg. of PSX/Takeover Reg. penalties were imposed in six cases and warnings were issued in four other cases.
SECP, as per the documents, has referred 175 cases to Pakistan Stock Exchange in which action was taken in 104 cases while 71 cases are still under process. SECP has also referred 369 cases to Central Depository Company Pakistan (CDC) in which actions were taken against 124 violators while the concerned institution was yet to complete proceedings against 155 violators.
SECP has also forwarded two cases to National Clearing Company of Pakistan Limited (NCCPL) for further necessary action.
As per the documents, in major cases of insider trading and other offences under the exchange ordinance of 1969, action was taken against violators. Meanwhile, an overwhelming majority of cases registered between 2015 and 2017 under securities act 2015 were under process or ended with the issuance of warnings to the offenders. Penalties were largely imposed in cases registered under Broker and Agents Rules-2001.
Recently National Assembly Standing Committee on Finance had also expressed its displeasure on the performance of the SECP regarding the measures taken by it to prevent insider trading. The committee directed the SECP to provide comparative practices in the world to stop insider trading and submit a report to the secretariat.
According to sources, SECP had last year filed a criminal complaint against a senior banker for being involved in possible insider trading. Based on an investigation, the SECP had found the banker having inside information regarding the bank’s decisions to invest and disinvest in stocks. The bank employee took advantage of the inside information and was involved in active trading in shares, which was also prohibited under the employees’ prudential regulations of the bank, making a profit of millions of rupees.
The Securities Act 2015 was aimed at taking steps to protect investors with the objective of fostering the growth of the securities market. It was claimed that the new Securities Act as compared to the 1969 Securities and Exchange Ordinance had been promulgated to introduce best international practices and incorporate the International Organisation of Securities Commission principles of securities regulations.
