PSX Suspends Its CRO After Mismanagement Results in Rs 1.2 Billion Scam

The Pakistan Stock Exchange (PSX) has decided to suspend its Chief Regulatory Officer (CRO) over failure to timely detect the MR Securities scam. The CRO failed to notice and tighten the regulations for brokerage houses.

“The Board (of Directors) has decided to suspend the CRO pending a detailed enquiry,” PSX said in a statement.

The Cause

Earlier on Tuesday, the board had a detailed meeting with the full bench of the apex regulator, the Securities and Exchange Commission of Pakistan (SECP), to discuss how to move forward following the default of MR Securities a couple of weeks ago.

The owner of the MR Securities firm has since fled following the probe initiated by the SECP. Allegedly, the owner has utilised the investors’ funds.

According to the PSX, a total of 485 claims have been received against MR Securities amounting to Rs. 1.2 billion. Even more claims are expected in the coming future.

The Recommendations for Improvement

During the meeting, the chairman SECP expressed his concerns over some single person companies acting as stockbrokers. He has “directed the Exchange {PSX} to ensure all such brokers convert to a private or public company within the specified time period,” according to the PSX statement.

It was decided during the meeting that “This was essential to provide for necessary corporate set-up, code of ethics, effective compliance framework and for protection of clients’ assets.”

The SECP members said that considering the risk to investors increases substantially when brokers receive custody of the clients asses, not all brokers should be allowed to have custody of the assets. The PSX agreed with the SECP.

In accordance with the SECP’s demands, the PSX will put in a much stronger inspection regime for brokers and agreed on the need to establish a national level Brokers’ Association as a Self-Regulatory Organisation under the Securities and Exchange Commission of Pakistan Act, 1997.

The statement said “In line with international best practices, the mandate of such association should inter alia include formulating necessary code of ethics for its members and instituting disciplinary policies/procedures for non-compliances of relevant regulatory framework.”

The PSX has also been directed by the SECP to implement regulations regarding the standardisation of brokers’ back office software in accordance with its rules. Had this step been undertaken before, the recent broker defaults could have been avoided.

SECP has emphasised upon the need for bringing about reforms for investor protection in a “forceful and timely manner.” A number of measures were discussed during the meeting and the PSX was directed to implement those.

The PSX has been advised to sale the assets of defaulting brokers and put all efforts for the resolution of all pending claims especially for small investors.

He is the Editor at ProPakistani. Reach him at [email protected]