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Violation of Securities Laws: SECP Penalizes Stockbrokers, Stakeholders

ISLAMABAD (April 20 2010) – The Securities and Exchange Commission of Pakistan (SECP) has imposed penalties on 22 members of the stock exchanges and other market stakeholders for violation of securities laws pertaining to insider trading, price manipulation, short/blank selling, wash trades, broker misconduct and non-compliance of the listing regulations during last one year.

According to an announcement by the SECP on Monday, warning letters were issued to 44 members of Karachi Stock Exchange and 6 members of Lahore Stock Exchange for possible violations. Besides, warning letters were also issued to two banks for non-compliance of the securities laws.

In addition, a stock exchange was also penalised for violation of the Securities & Exchange Ordinance, 1969. In 22 different cases for violation of securities laws, with special reference to insider trading, price manipulation, short/blank selling, wash trades, broker misconduct and non-compliance of the Listing Regulations, orders were issued after conducting hearings, and penalties were imposed under the Securities & Exchange Ordinance, 1969 and Brokers & Agents Registration Rules, 2001 to the members of the stock exchanges and other market stakeholders (copies of the Orders available on SECP website).

The Commission suspended registration of five members of Karachi Stock Exchange on June 26, 2009 due to unresolved investor's complaints. Subsequently, to ascertain the quantum of these complaints and other related issues, the Commission initiated enquiry against these brokerage houses under Section 21 of the Securities & Exchange Ordinance, 1969. The said enquiries were conducted by joint teams comprising of officers from the Commission, Karachi Stock Exchange and Central Depository Company of Pakistan. The enquiry teams submitted the enquiry reports to the Commission. Based on the findings of these reports, the Commission initiated legal action under the relevant provisions of the laws against the persons who were involved in prohibitive activities.

Moreover, in the interest of public at large and in view of the large number of investors' complaints, mainly pertaining to alleged non-transfer of shares and non-payment of funds, the enquiries were also initiated under section 21 of the Securities & Exchange Ordinance, 1969 against the four expelled/defaulter brokerage houses of the Karachi Stock Exchange during the first half of 2010.

During the period, 26 cases of possible violation of Section 224 of the Companies Ordinance, 1984 were detected/processed with respect to tenderable gain. The gain was tendered to the issuers in three cases and to the Commission in four cases. Orders were passed in five cases after due process, and show-cause notices were issued in nine cases.

The Commission is determined to pursue its agenda of fair market practices, transparency and investor confidence for the growth, development and stability in the capital market. The SECP stated that the orders were issued after conducting hearings, and penalties were imposed under the Securities & Exchange Ordinance, 1969 and Brokers & Agents Registration Rules, 2001 to the members of the stock exchanges and other market stakeholders (copies of the Orders available on SECP website).

Market integrity is the core objective of any securities regulator and is crucial for the well-functioning of the capital market. Market surveillance in particular plays a significant role in detecting and deterring potential market abuse and avoiding disruptions to the market from anomalous trading activities. Where such cases are detected, actions are taken in accordance with the law. The Securities Market Division of the SECP performed active monitoring and surveillance of the stock market during last twelve months. The focus was to check compliance of prevailing regulatory framework, enforcement and development of fair and transparent market. This has also been evident from numerous enforcement cases initiated and actions taken during the period under review, the SECP said.

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