SECP probes suspicious trading activities at PSX aligned with State Life

Allegations of market manipulation and front-running at the Pakistan Stock Exchange (PSX) have surfaced once again as the KSE-100 Index continues to reach new historic highs. 

The Securities and Exchange Commission of Pakistan (SECP) recently lodged a criminal complaint at the Special Court (Offenses in Banks), Karachi regarding suspicious trading activities between October and December 2021 and found a high percentage of sell-side trades of a client.

BR reported that the complaint names Abdul Basit, accused of aligning his sell-side trades predominantly with State Life, the nation’s largest state-owned insurer. 

The second accused Abdul Waheed Shaikh, identified as the individual authorised to execute trades on behalf of State Life, is also implicated. 

The SECP’s investigation revealed that around 95% to 100% of accused Basit’s trades during this period were synchronized with State Life’s transactions. 

State Life executed a large volume of buy transactions in the last quarter of 2021, by purchasing 12.108 million shares worth Rs3,987.289 million from seven listed companies namely, Indus Motor Company, Millat Tractors, MCB Bank, Thal Limited, International Industries Limited, Bestway Cement and Bank Alfalah.

The SECP said in its complaint that Basit’s trading pattern was completely different from his previous pattern as he became a day trader and allegedly netted a profit of Rs 8.139 million, predominantly from trades involving State Life. 

The regulator’s analysis of the data revealed that 99% of State Life’s total buying was in the first six scrips, whereas more than 80% of trading by accused Basit was also in the same six scrips.

State Life purchased 47.32% of its total trade value during the review period alone from Basit whereas, 52.68% was bought from 861 different investors. 

The SECP also pointed out that from January 1, 2021, till March 31, 2022, the accused was able to realise a net gain of Rs7.8 million while his trades in the six scrips saw him realise a gain of Rs7.892 million which means he suffered a loss during this period. 

This synchronization of trades, according to the SECP, indicates potential prior knowledge of State Life’s trading decisions.

The incident has reignited concerns about the transparency and integrity of the PSX, with some industry insiders suggesting that such practices could deter individual investors, potentially harming the broader market’s appeal.

This is set against a backdrop where Pakistan’s savings and investment rates are comparatively low, and market manipulations remain a significant deterrent for small investors.

Earlier, Profit reported that four different cases were filed last month against different individuals which include brokers, as well as sponsor shareholders of listed companies. The violations had been carried out between 2019 to 2021 and the central accusation is stock price manipulation.