Small brokers charge headlong at SECP
Agenda of progress to be vigorously followed: Firdous
Special Assistant to the Prime Minister on Information and Broadcasting Dr. Firdous
Ashiq Awan on Monday said the government would take forward with full force the agenda of progress and prosperity of people under the leadership of Prime Minister Imran Khan.
In a series of tweets, the SAPM said Prime Minister's visit to Karachi was a good news for the youth of the Sindh province. She said that the distribution of cheques by the PM among youth of Sindh under Kamyab Jawan programme would eventually rid them of disappointment and dismay.
She expressed the optimism that the programme will prove to be an important step toward materialization of dreams of youth of Sindh.
The Special Assistant said progress of youth of Sindh meant the strengthening the Federation and added empowering the youth as vision of the Prime Minister since they were asset for the country.
She said these initiatives were imperative to create opportunities for the youth to move forward, make them partner in the development process, and to expedite the economic progress.
The Special Assistant said that those who wanted to create political chaos, have got disappointed. She said the political opponents, who were trying to portray democratic differences as conspiracy, should rest informed that the government was not only strong with the support of the allies but the democratic differences have also been resolved in a democratic manner.
Few regulations have been opposed by stockbrokers as vociferously as the proposed New Broker Regime.
The two dozen "big brothers" of the fraternity are maintaining a safe distance from the controversy: the proposed regulations do not appear to touch their pockets and, in fact, promises to secure them bigger business. Despite all the wailing and gnashing of teeth by the rest of the market players represented by the PSX Stockbrokers Association, the protest has scarcely dented the regulators' determination. But whatever is the New Broker Regime?
Officials at the Securities and Exchange Commission of Pakistan (SECP) contend that it "primarily aims to strengthen the capital market and restore investor confidence".
The model suggests three categories of brokers be created: Trading Only (TO) brokers who would be allowed to execute proprietary trades/trades by clients but would not keep custody of proprietary or client assets and would not settle trades. The second class is of Trading and Self-Clearing (TSC) brokers who would execute and settle trades of their clients and also keep custody of client assets.
It is the third category of brokers - Trading and Clearing (TC) brokers, widely perceived as big brokers - that appears to be a major beneficiary of the law. They would be empowered to execute and settle proprietary client trades, keep custody of client assets and also offer custodial and clearing services to TO brokers and their clients.
A set of proposed regulations appears to favour big players The SECP says that currently all brokers are allowed to keep custody of client shares and money irrespective of their financial standing, which is to be remodelled along international practices to let brokers with capacity to meet the requisite level of compliance, particularly related to anti-money laundering (AML) and combating the financing of terrorism (CFT) in light of Financial Action Task Force (FATF) requirements.
According to the regulator, the "well-capitalised brokers" currently have a market share exceeding 90 per cent in terms of both client asset custody and trading quantum while the "small brokers" have merely 10pc of the aggregate customer base and contribute nominally to the trading quantum. The new regime aims at segregating the market to reduce systemic risk.
According to an SECP insider, 27 brokers have defaulted in the last 10 years, resulting in investor claims of around Rs5.8 billion. Thus, the average is two to three broker defaults per year with claims of more than Rs200 million. He points out that thousands of investors have lost their investments.
A broker - who has merely 220 square feet of a room for his office - scoffed at the insinuation that small brokers were perpetrators of major frauds, noting that "super brokers" committed such crimes.
The SECP official, who asked not to be named, said: "Presently, top 60 brokers have more than 80pc customers. Further, top 50 brokers generate more than 80pc of the trading volume. The smallest 170 brokers have just 10pc of the total clientele."
The thinking in Islamabad is that allowing small brokers to bite only as much as they can chew will reduce the chance of mishandling of client assets. On the other side, the PSX Stockbrokers Association says the idea of creating super brokers should be dropped. The association laments that the New Broker Regime concept note issued in November 2019 aimed at altering the business model of stockbrokers for the third time in as many years.
To comply with the postdemutualisation requirements, the brokers' body had agreed to the proposed segregation of brokers by virtue of minimum paidup capital, minimum net worth, minimum net capital balance and minimum liquid capital for the three categories. But the rules were abruptly changed.