ISLAMABAD: Securities and Exchange Commission of Pakistan (SECP) has warned brokers of penal action in case of involvement in unauthorized deposits.
In a circular issued on Thursday, the SECP said that it had observed that some of the brokers were involved in unauthorized deposit taking activity in one form or other.
“This act of brokers is not only in contravention of the Companies Act 2017 but also against the Securities Act 2015 as deposit taking is not a permissible activity for a broker under the Act,” the SECP said.
Furthermore, the act restricts a broker to undertake only that activity exclusively which is permissible under the Act, the regulator added.
In view of foregoing and to protect the public interest and customers, the SECP, directed all the brokers including their representatives and agents to comply with the following:
- A broker including their representatives and agents shall not accept any money or deposit or borrowing by whatsoever name called and in whatsoever manner from any person including an individual or any segment of public or directors and sponsors of a broker including their representatives and agents except in the following manner:
- Redeemable capital issued by a broker under the Companies Act.
- Finance obtained by a broker from a financial institution.
- Advance, application or subscription money for broker’s shares.
- Subordinated loans from broker directors or sponsors as identified at the time of license renewal in terms of Regulation 4(c) of the Securities Brokers (Licensing and Operations) Regulations, 2016 or substantial shareholders of brokers subject to the following conditions:
- Subordinated loan shall be documented by a formal subordination agreement between the provider of the loan and the broker. Furthermore, minimum tenor, terms of repayment and repayment schedule of subordinated loan shall be specifically made part of the subordinated agreement.
- Subordinated loan shall be in the form of cash only;
iii. Subordinated loan shall be un-secured and sub-ordinate to all other indebtedness;
- No markup or interest shall be paid by the broker on the subordinated loan;
- Certificate from the auditor of broker evidencing injection of funds as subordinated loan;
- Subordinated loan shall only be utilized by the broker for the purpose of increase equity/net worth, liquid capital or for any other purpose duly approved by the commission on such term and conditions as deemed appropriate. Subordinated loan in no way be utilized towards any other purpose including margin financing/margin trading etc; and
vii. Prior approval of the commission shall be required for repayment of subordinated loan.
- The broker including their representatives and agents may accept money in the name of brokers from its customers, only for trading purposes if that customer’s UIN is already mapped in NCCPL system. Moreover, no pre-determined or guaranteed rate of return by whatsoever name called and in whatsoever manner shall be given to such customers including as part of reduced charges in commission/tariff structure.
