1. This Order shall dispose of the proceedings initiated through Show Cause Notice ("SCN") No. SMD/MSW/ FR-MA/73/2014-802, dated November 07, 2014 issued by Securities and Exchange Commission of Pakistan (the "Commission") under Section 15 A of the Securities and Exchange Ordinance 1969 (the "Ordinance") to Mrs. Maria Asif client of MRA Securities (Pvt.) Ltd("MSL"),
2. Brief facts of the case are that Mrs. Maria Asif UIN 42101-5323437-8 is the client of MSL bearing Name Maria Asif Member Name MRA Securities (Pvt.) Ltd. Client Code 03412 Account Opening Date August 20, 2007 3. Review of trading record of Mrs. Maria Asif for the period starting from January 2011 to June 2014 ("Review Period") reveals that considerable amount of her trading matched with the trading of clients of Abbasi Securities (Pvt.) Ltd ("ASL"). Detail of which is as follows: Total Buy and Sell of Mrs. Maria Asif During the period Shares Total Buy 1,575,790 Total Sell 1,515,557 Transaction matched with ASL clients From ASL Shares %age Total Buy 324,629 20.60% Total Sell 1,049,845 69.27% Detail of transactions carried out by Mrs. Maria Asif with the client of ASL are enclosed as Annexure - A, which reflects that most of the trades were 100% matched with the trades executed by Mr. Muhammad Asif for the clients of ASL.
2. NADRA verisys of Mrs. Maria Asif revealed that she is wife of Mr. Muhammad Asif, who worked as KATS operator with ASL. In view of the above mentioned, it was observed that prima .Fticie Mr. Muhammad Asif was providing material information pertaining to the orders of the clients of ASL, to his wife Mrs. Maria Asif, which was available to him by the virtue of his position as KATS Operator at ASL. Therefore, SCN under Section 15 A read with Section 22 of the Ordinance was issued to Mrs. Maria Asif to show cause as to why penal action may not be taken against her under Section 15E of the Ordinance.
3. Mrs. Maria Asif responded the SCN vide her letter dated Nil, received by this Office on December 08, 2014. Brief contention of which are as follows: Mr. Muhammad Asif has never been providing any information pertaining to the orders of the clients of ASL and he never communicated any inside information relating to the orders etc. I used to trade in different securities but the same was not based on any inside information.
4. I have a joint account with my uncle and all the decision had been taken by us with our consent.
5. Profit and loss is the part of the trading in securities and whatever profit I earned was neither due to any connivance nor because of any prior information.
6. I specially deny that I was involved in front running of the clients of ASL.
7. I traded in different securities and all of my transactions were based on my personal independent decisions with my uncle, hence show cause notice is based on misunderstanding or misconstructions of facts.
8. I hereby request that the SCN may be withdrawn in the interest of justice.
9. Reply submitted by Mrs. Maria Asif was not found satisfactory. Therefore hearing in the matter was fixed on December 30, 2014. The hearing was attended by Mr. Muhammad Asif, on behalf of Mrs. Maria Asif.
10. During the hearing proceedings, Mr. Muhammad Asif initially denied the allegations levied and stated that Maria Asif did not trade based on the information with regard to the orders of clients of ASL provided by him. However, it was argued with Mr. Muhammad Asif that substantial percentage of the trading of Mrs. Maria Asif, as mentioned above, matched with the client of ASL and asked him to justify this matching of trades. Mr. Muhammad Asif did not furnish the satisfactory reply and admitted the noncompliance with the provisions of the Ordinance. He further stated that She is a housewife and not aware of the legal provisions with regard to the insider trading as stipulated in the Ordinance.
11. He had been passing on information pertaining to the orders of clients of ASL to his wife Mrs. Maria Asif to earn money and to meet the personal expenditure.
12. He belongs to a poor family. He had to earn money to meet the family expenses.
13. He is currently unemployed and do not have funds to pay any penalty, if imposed by the Commission.
14. He assured that he will comply with the relevant provision of law in letter and spirit.
15. He prayed that a lenient view may he taken in the matter.
16. I have examined the record available with the Commission and deliberation made during the hearing proceedings. It is evident that Mr. Muhammad Asif being an insider disclosed the material non-public information relating to trading orders of the clients of ASL, to his wife Mrs. Maria Asif, who traded in the scrips as stated in preceding paragraphs, which resulted in significant amount of profit to her.
17. Mrs. Maria Asif is involved in the front running of the clients of ASL and earned an accumulated profit of Rs. 755,307/- (Rupees seven hundred fifty five thousand three hundred seven only) through these transactions. Such information classifies as 'Inside Information within the scope and meaning of Section 15B (1) (c) of the Ordinance reproduced below: Section 15B of the Ordinance - Inside Information (1) The expression "inside information" means, -
(c) in relation to persons responsible for the execution of orders concerning listed securities, information which is conveyed by a client to such person and related to the client's pending orders.
18. Mr. Muhammad Asif by virtue of his position/employment with ASL establishes that he is an 'Insider' as defined in Section 15C (1) (g) of the Ordinance: Section 15C of the Ordinance - Insiders Insider shall include, -
(g) any person obtaining inside information as part of his employment or when discharging his usual duties in an official capacity, or in any other way relating to work performed under contract of employment or otherwise; In this regard, it has been established that the Mrs. Maria Asif has violated the relevant provisions of the Ordinance and traded based on the inside information pertaining to the orders of the clients of ASL. Mrs. Maria Asif has indulged in insider trading based on the information available with her and hence failed to comply with the provisions of the Section 15A of Ordinance, which attract the penal provisions of Section 15E of the Ordinance that reads as under: Section 15E of the Ordinance - Liability for contravention Any person who contravenes the provisions of subsection (1) of section 15A shall, on being found guilty of contravention by the Commission, be liable to fine, which may extend to ten million rupees or three times the amount of gain made or loss avoided by such person, or loss suffered by another person, whichever amount is higher.
19. In addition to the fine imposed under sub-section (1), such person,-(a) may be .Directed by the Commission, to surrender fo the Commission, an amount equivalent to the gain made or loss avoided by him; or to pay any other person who has suffered a loss, an amount equivalent to the loss so suffered by such person; and may, where such person is an executive officer, director, auditor, advisor, consultant of a listed company, be removed from such office by an order of the Commission and debarred from auditing any listed company for a period of up to three years; or may, where such person is registered as a broker or agent, be liable to cancellation of registration.
20. Before concluding the case, I would like to discuss the front running and its consequences and why it is illegal. Front running means buying or selling of securities ahead of a client's order so as to benefit from the subsequent price movement. This denotes persons dealing in the market, knowing that a transaction will take place in the near future and that price of share is likely to move in his favor. Front running is not only unethical but at the same time it is illegal. It is imperative that a broker and its employees acting on behalf of an investor must execute the investor's order in a way that is most advantageous to the investor rather than themselves. By front running, the Broker or its officer acts in an unethical manner, putting his own interest above that of his client, thereby causing a fraud. In fact the KATS operator in the instant case was stealing a part of money from the clients which otherwise they won't have to pay.
21. In view of the above, I am of the considered view that Mrs. Maria Asif violated the provisions of the Ordinance. Therefore, in exercise of powers under Section 15E of the Ordinance, I hereby impose a penalty of Rs. 755,307/- (Rupees seven hundred fifty five thousand three hundred seven only) on Mrs. Maria Asif for trading based on the material information passed on by her husband Mr. Muhammad Asif pertaining to the orders of clients of ASL, in violation with the provision of Section 15A of the Ordinance.
22. The matter is disposed of in the above manner and Mrs. Maria Asif is directed to deposit the penalty in the account of the Commission being maintained in the designated branches of MCB Bank Limited within 30 days from the date of this order and furnish the copy of the deposit challan to the undersigned.
23. This order is issued without prejudice to any other action that the Commission may initiate in accordance with any other provision(s) of law time being enforced.