1. ORDER 1 This order shall dispose of the proceedings initialed through Show Cause Notice bearing No. fv1SW/SMDILSE/1{5)201:6 dated October 21, 2007 ("the SCN) issued 10 ty.l.R Securities (Pvt.) Limited rthe Respondent"). Member of the Lahore Stock Exchange (Guarantee) Limited ("LSE") by the Securilies and Exchange Commission of Pakistan 'Abe Commission') under Rule 8 of the Brokers and Agents Registration Rules. 2001 ("the Brokers Rules") for violation of Rule 12 of Ihe Brokers Rules and c:lause A5 of ihe Code of Con-duCt contaiiied in thi!. Third Schedule if the Brokers 2. The brief facts of the case are lhal 1[16 Respondent is a member of LSE and is.Regslered wilfi the Cornrriis.Sion under the Brokers Rules. An enquiry was Iniliated by the Commission in exercise of 11s powers under Section 21 of the Securities arid Exchange Ordinance, 1969 ("the Ordinance') and Ford RtiCides Sidat Hydei & Co (`the Enquiry Officer-n leas appointed as the Enquiry Officer under the above mentioned section lor the following.
2. Lo enquire into the dealings, business or any transaction ny the Respondent dunng the period from April 01, 200610 June 15. 20X (`the Review Period").
3. To identify any and all the acts or ornisaions constituting the violation of The Ordinance and ihe made thereunder to identify violations of any Other apoltoabfe laws, including but not limited 10 the Brokers Rules, Regulations for short Selling under Ready Market. 2002 ("Short Selling Regulations"), General Rules and Regulations of Lahore Stock Exchange (Guarantee) Limited, Securities and Exchange Rules 197,1 ("the 1971 Rules') and directives issued by the Commission from Rime to lime.
3. The fludinp 01 tbe Enquiry Cjiicer revealed HYPERLINK http://se-.Ei.Al se-.Ei.Al Instances of potential hon comptiariCes wit's applicable laws:and regulaWM A copy of the Enquiry Officer's report was sent ID the Resprinderil on Oklot)er which required Rhe Respondent to provide exprranations on Rhe Dhervat.,.Ont..,f the Enquiry Offices together waft supporting documents 1. Aitet perusal ol the lesporrfent's replieS to the above rrienti.Cmc-d letter, which did not ciequalely explain positami, 111E3 SON' was r55Uer.} (Re Respondent under Puries of lhe Brokers Rules stating that tbe 1.. Fairc corilravened Rule. 12 of the BroKers.. Rules read with Clause A5 of the Code cif .11 the 3111.Irddi Schedule to Vie Broker's Rules which are reproduced as undor...
4. Me 12, A hdlding a certificate of registration under these rtr'e's shalt abide by lhe .C.On(Iucil specified In the Third arredulef Clause A5 of the Code of Conduct. -A broker shah abiOe 1-)y aIl tr.e.
5. Prniyismris of Ifia Acl and 111(.-1 rules, regulations issued the C'oirirnisston and Ihe stock exchange from lime to t.Me as may be applicable to him' 5 On October 31 20.:17, the ResKindent was cnlied upon to show cause it writing within seven days.And appear befoire the inkdeisk died on November 12, 2007 for R hearni, lo be attended either in person anWor througls an aulhoTizecl lepreseiitalive.
6. 6 the healing was .Iltended by Mr Engr PyIaznar Rafiq, Chief Exe...-Nilive. ^f Resporden1 who afgue-cl the case Lirttier a wi die ir reply Dialed November 6 2007 was also submiRed 7 A sunirriai y of cdrri--..Ntions and oblectiops Ihai were raised by the Respo-ilu.Ilt in its written _submissions arld dui og the tiqn, lig .Ind findings and conclusion of R#1e CumrnissiOn on the same is as follows 8 Blank Sales Issue No. 1-) 81 In terns of REAiLikitiori 4 of the Short Selling. Regulations, Blank Sales are not pezglisSible and WI lams of Regulation 5 of the Shod Selling Regulations, st is provided that Ni Mon-ther shall ril-ske. aShert Sale unless Priui c.1 dilractual borrowing arrangeni.Eil has been made laI Iv, ill an uptick and irale is identified as a &log Sale at the time of plar,-emE-.111 of oi.Ctr' 8.2 The firidiNs of the Enquiry Officer revealed three inshinces.Of Saes iLturing lhe Review Puriofi 8.3 Tlte ReSwriderit i'lado the felkiwing subrrIssions on lire Issue With legdrd to the Blarsk Sale mentioned at seBal no 1 of the Annexure - ( the Annexure't enoloseci wi111 SON. The liespoodent slated Ma! He tirade was wrengty ex.Ecuted In client 91-0:43 account acfs:allv the order was placed by client 91-094. Tile Ezra was. Detected and c.Nrre.Cted on the ;%-itrre day The ResNndant further slated that dent c..0093 11or deal in the scrip of FPI_ during the month of May, 2006. As for the client 91-094 the Respondent stated that the carer had houghl 19,500 shares on May 25, 2005 at KSE and 51.106 shares at LSE on the same day out of which 25,00.0 shares were placed on CFO through LSE on May 30, .2006r therafore ckonl 91,0M had preexisling interest in the shares hdore sale.
7. As for the Blal..k Sales mentioned a1 serial nos. 2 and 3 of the Amexufe the Respeildent in his written reply stated that same were result of a human e.i.Sor where buy Orders were placed as sell ordors on the system However same was rectified with the consent of clients Moreover, during the hearing the Responder!' slated that it has now ihstaUed in house developed software to check Blank Sales 8.4 I have considered the contentions of Ihe Resvmdeni anti Ihe issues raised therein and lhe sargc aie addressed by me below.
8. 6 The Respondent in 811 ihe three instances of Blank Sales given in the Annexure claimed that they were result of an error and were not deliberate attempts to execute Blank Sales. With regard to the inslance giver' al serial NQ. 1 of the Annexure the Resporldent provided sufficient documentary proof that the client 91-094 had sufficient pre-existing interest in the shares. Before sale. Whereas. In the last Iwo instances Blank Sales were executed but as a result of mistAe The execution of trades in question shows that Respondent needs to improve it systems and controts at its house to ensure thal each and every trade executed through its terminal are executed in conformity with the applicattle taws..
9. 8:5 Considering the above facts and the contentions of the Respondent. It Is established that two Blank Sales given in Annexure ha.Vo been made in violation of Regulation 4 of the Shod Selling Regulations, In terms of Rule 8 of the Brokers Rules, more particularly sub rule fig), sub (iii) and sub rule (iv) therefore, where the Commission is of ihe opinion that a broker has inlet- aria failed to comply 'Ain any requirements of the SECP Act or the Ordinance or of any rule or direction made Of given there under andfor has.Conlravened the rules nr.1 regulations of the Exchange andicir has failed to follow any reouiitment of the Cryde of Conduct laid down in the Third Schedule, may in the public interest; tee action under Rule 80) or (b) of the Br kern Ru]es 8.6 In light of the above I e. The fact Thal the Respondent iailed to comply with GornmiS56:0'$ directive thereby attracting sub rule r%4 of the Rule 8 of the Brokers Rule. However. Keeping in view smelt number of instances and shares involved and Respondent's szeterrielli that he has already taken corrective actions and assurance that such viotations will no occur in future f am inclined, on this occasion, to take a lenient view in the matter arid will fini take any vunitive action under Rule 8 of the Brokers Rules. As such. I believe a 'caution' in this instance to. The Resporiden1 would suffice and I would further lifted the Respondent to ensure that lull compliance be made of all rules reptatiom and directives of the Commission in the future roc avoiding any punitive action sinder the law 9 Account Opening Forms (issue No. 2") 9.1 In terms of Commisston's Directive No, SIV1DiSE12(89) 2003 dated July 23. 2003 which requires all the members-brokers lo maintain Amount Opening Form(s) ("the AOF(s)r) in conformity with the Standardized Account Opening F0171 (-the SAOF") prescribed by the Commission. And subsequent changes made to the SAOF vide letters No. SMD/SE/2(89) 2003, dated November 19, 2003 and January 20, 2004. Subsequently this SAOF was also made part of LSE General Rules and Regulations as chapter VIII ore said directives of the Commission require that any fields of AOF should not be left blank acid any non-.Applicable held must be marked as "NIA` 9.2 Findings of the Enquiry Officer revealed that non-applicable fields of AOF Were left blaniq, and were not marked as 'NIA".
10. 9.3 The Respondent made the following submission on these issues The Respncient asserted that no guidance was given by LSE regarding how to fill the AOFs and neither this error was pointed out during the system audit However it has now rectified mistakes and this sOrt of errors will wit happen in future.
11. 9.4 I have considered the contentions of the Respondent and the issues raised therein and the .Same are addressed by me below: The Respondent during the hearing accepted that above mentioned violation which was due to lack of knowledge of the Respondent regarding iequirements of the SAOF, It may be noWl that the said requirement of the SAOF ensures that the AOFs are not amended/altered by the brokers without the consent cal the Ac.Couril Holder thus safe guarding client's interest Considering the above facts and the contentions of the Respondent. Il is established that RespOndeni has failed to oornply with Cummission's Directive and General Rules and Regulations of the Lahore Stock Excharige. In terms of Rule 8 of the Brokers Rules. More particularly sub rule- (iii).And sub rule (v) therefore, whore the C0111FT1ISSiOfl is oi the opinion that a broker has inter .Atia failed to comply with requirements of the any directions of the Commission anchor has contravened the rules and regulations of the Exchange and/or has felted to !Allow any requirement el the code of conduct !Aid down in the Third Schedule, it may in the public interest, lake action under Rule S(,a) Or (b) or the Brokers Rules.
12. 9.6 In fight of the above i.e. The fact lhe Respondent failed to comply with Commission-s directive thereby attracting Sub rule (v) Of the Rule 8 of the Brokers Rote However. Based on ihe. Respondents statement that hetes already taken corrective actions and assurance that such violations will nO1 occur m future I ant inclined. On this occasion. To take a lenient view in the matter and MI not take any punitive action under Rule 8 pr the Brokers Rules As such, t believe a 'caulion' in this instance to the Respondent would suffice and I would further direct the Respondent to ensure that full compliance be made of all rules: regulations and directives of the Commission In the future for avoiding any punitive action under the law 10.
13. 101 10,2 10.3 10 4 Execution of Orders of other members of the same exchange (-Issue No. 3') In terms Corrimiss,on's directive No.F .1 3/SMDSECP/2005 dated September 23: 2005 members are not allowed to trade thicugh other brokerage houses within the same exchange.
14. The findings of the Enquiry Officer revealed that the Respondent has executed orders on behalf of the other members of the LSE.
15. The Respondent made the following submission an this issue Respondent stated shirt ii executed some orders of Khaki Javed Securities (Pvt.) Limited ("the K-15-) For a silo time due In the fact that the KJS did not have arrangement with any membes. r-q Karachi Stock Exchange (Guarantee)
16. Limited ''KSE") for trading at KSE Therefore, the Respondent bought shares at KSE through its broker at KSE on behalf of KJS and same.Shares were sold at LSE to get the best vice. However, same was not done with the intention to manipulate the market I have considered the contentions Of the Respondent and the issues raised therein and the same are addressed by me helOw: The Resomiderit has acknowledged during the hearing and its written reply that it did execute some orders on behalf of KJS who is member of LSE The placement of order of KiS by Respondents at KSE does not violate the said directive of the ComMission: however, the subsequent sale of 'IJS shares by the Respondent al LSE :s a clear violation, The ResprOndent should have abstained ifom execution of KJS orders at USE, KJS being a member of LSE had the same opportunity to gel the best price at LSE and therefore, should have sold the shares through its own houselterminals by getting delivery of the shares bought at KSE through Respondent in order to comply with the said directive In light of the above i.e. The fact that the RespondenI had failed to comply with Commission's directive thereby attracting sub rule. (v) of the Rule 8 of the Brokers Rule Ac...Cordingly. a penalty of Rs. 5,000 (Rupees Five Thousand only is hereby imposed on the Respondent under Rule 8 (13) of the Brokers Rules.
17. As stated above, the Respondent is penafiaed as follows: As regalds Issue No 3, as stated above, a penalty of Rs 5rOn- (Rupees Five Thousand only) is imposed b) No punitive action is lateen in relation io Issue No 1 and 2 and a simple caution wit' suffice.
18. Commission not later thin fifteen CI 5} days from the receipt of this Order