In 2000, the SECP passed an order. It took 24 years for the IHC to uphold it

The Islamabad High Court has ruled in favour of the apex regulator and the investing public. But is this a case of too little too late, or better late than never?

Victories enjoyed by the Securities and Exchange Commission of Pakistan (SECP) are few and far between when it comes to the capital markets. When they do end up getting a win in their column, it is a cause of celebration. Even if it comes 24 years after the original order was given. 

That is exactly what happened earlier this month, when the IHC gave a verdict on a decision that was long overdue. Back in the year 2000, the SECP had passed a decision pertaining to shares sold by a particular broker in the stock exchange. So what exactly is the verdict and what are the details of the case in relation to the verdict? To understand it, we need to know how the stock market in Pakistan worked 24 years ago. 

Back in the day … 

In order to comprehend what has happened, there is a need to go back in time. In the 90s and the early 2000s, the capital markets of Pakistan were like the Wild West. There was little that existed in terms of rules and regulations and there was a blase attitude towards having a formalized manner of trading. Brokers were not mandated to ask the source of financing for the client, trading could be carried out without any sort of uniform account opening and custody of shares was mostly kept by the brokers rather than giving them over to the clients. 

Much of this has changed since. 

Accounts are only opened after a thorough Know Your Client (KYC) procedure has been carried out. Brokers need to record the orders being placed with them by the client and the shares of the clients are deposited with the Central Depository Company (CDC) once they are bought or sold. Any movement in these shares is communicated to the clients on that day and, in case they feel something untoward has happened, they can report this discrepancy to the relevant authorities.

Back in the early 2000s, none of these systems were in place. In order to place an order with the broker, the client would contact their agent and place a trade with them. These agents are people who have been hired by the brokerage house and act as a liaison between the company and the client. The client would contact the agent and ask them to place a trade. Any trust the client had in the brokerage house was based on his relationship with the agent and the agent would be the only point of contact. As the controls were not stringent, the agent could buy the shares for the client and place them in their own account rather than being mandated to deposit them in the client’s account. This is where the story of this case starts.

The case in question

Our story begins in 2000 when a client by the name of Abdul Wahab Memon was trading through the brokerage house of Siddiq Moti. Memon had a system in which he would buy shares for himself through a man called Nadeem Hussain. Nadeem Hussain would take the funds from Memon and then buy shares on his behalf. As Nadeem Hussain was the man in contact with the brokerage house, he was considered the de facto authority in regards to investments being made by Memon. Hussain would not contact the brokerage house or Moti himself. The way things work at the stock exchange is that the broker hires agents who are the sole point of contact between the client and the broker. They act as the liaison between the two parties. Many times, the trust that the client has in a broker is based on his rapport and relationship with the agent rather than the owner of the brokerage house. The agent in this case was named Junaid Ali.

In the course of business 

 

To read the full article, subscribe and support independent business journalism in Pakistan

The content in this publication is expensive to produce. But unlike other journalistic outfits, business publications have to cover the very organizations that directly give them advertisements. Hence, this large source of revenue, which is the lifeblood of other media houses, is severely compromised on account of Profit’s no-compromise policy when it comes to our reporting. No wonder, Profit has lost multiple ad deals, worth tens of millions of rupees, due to stories that held big businesses to account.

Hence, for our work to continue unfettered, it must be supported by discerning readers who know the value of quality business journalism, not just for the economy but for the society as a whole.

(Already a subscriber? Click here to login)
  • Full Price Subscription Plans

    Not only will you be supporting independent journalism, 25% of the amount from your subscription will be used to subsidise those subscribers who cannot afford the full price of the subscription. As a subscriber you will get full access to exclusive paywalled content, and an ad free reading experience. Yearly full price subscription plans also include a complimentary annual subscription to The Wall Street Journal.

    +

  • Subsidised Subscription Plans

    Pay part of the full subscription price, if you cannot afford to pay all of it, and the rest will be subsidised by a full paying subscriber. As a subscriber you will get access to exclusive paywalled content, and an ad free reading experience.

  • Free Student Subscriptions

    If you are currently a student, you can claim an already-paid-for digital subscription, courtesy

    As a subscriber you will get access to exclusive paywalled content, an ad free reading experience.

     

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Must Read