Pakistani regulator stepping up stockbroker investigations

islamabad — Pakistan’s financial regulator is escalating investigations against stockbrokers in a campaign to curb insider trading and illegal leveraging in the stock market, its executive director said in an interview.

Pakistan’s benchmark stocks index was one of the world’s best performing last year and has returned more than 900 per cent since early 2009. But the bourse’s last crash in 2008 was severe and made worse by brokers holding secretly leveraged positions.

The Securities and Exchange Commission of Pakistan (SECP) has filed criminal complaints of market abuses against seven stockbrokers this year, including for insider trading and stocks manipulation. A judge will decide whether the complaints warrant formal charges - the usual outcome in such cases.

Two complaints have also been filed about employees in banks who engaged in “front-running”, which involves trading on advance information not available to clients.

SECP executive director Bilal Rasul told Reuters in an interview that the agency has taken a more assertive role this year in the wake of new legislation to reform financial markets.

“In terms of investigations, legal proceedings, regulations passed, I think the broker community and the market have reconciled with the fact that they need to ensure full compliance in order to stay in business,” Rasul, also the SECP’s spokesman, said at its headquarters in Islamabad.

In recent years the main Pakistan bourses were demutualised to weaken the influence of stockbrokers and deepen the investor base, which remains low by regional standards.

Pakistan’s bourse was boosted last year when the stock market was reclassified to be included in the MSCI’s emerging market index category, thanks partly to reforms aimed at increasing transparency.

Rasul said the MSCI reclassification, which is set to take effect in May and expected to boost liquidity, is a key incentive to continue cleaning up the market and attracting more local and foreign investors.

The latter see Pakistan as an especially risky market due to political instability, including Islamist militancy, in the nuclear-armed South Asian country. —