1 This order shall dispose of the proceedings initiated through Show Cause Notice bearing No. 1 (7)
IT/MSW/SMD/2011/02 dated June 08, 2011 ("SCN") under Section 15E of the Securities & Exchange Ordinance, 1969 ("the Ordinance") issued by the Securities and Exchange Commission of Pakistan ("the Commission") to Mrs. Nasim Akhtar ("the Respondent").
2. At the outset, it is imperative to give an account of the facts relating to the case. On perusal of trading data of Karachi Automated Trading System of Karachi Stock Exchange (Guarantee) Limited ("KSE"), it was observed that the Respondent traded extensively in shares of a number of companies. It was further noted that the trading by the Respondent was conducted through JS Global Capital Limited ("JSGCL"), which is a corporate member of KSE.
3. The analysis of trading data revealed that the Respondent traded in her brokerage account from March 05, 2010 to April 12, 2011. The trading information further signified that a total of 203 trading instances were recorded in the account of the Respondent during 129 trading days. For the purpose of simplicity, a trading instance is taken to be the total trading conducted in a single scrip by the trader during a given day. It was noted that out of the total 203 trading instances, 184 trading instances involved where the Respondent purchased and sold exactly the same number of shares in a given scrip on the same trading day ("Day Trading"). The remaining 19 trading instances represented situations when purchase and sale quantities of shares in the account of the Respondent on a given trading day in a certain scrip did not set off completely ("Position Trading").
4. A significant majority of trading in the account of the Respondent was directly synchronized with the placement of orders and trading of foreign clients of JSGCL. In addition to this, it was noted that a major portion of trading by the Respondent matched directly with the trading of foreign clients. In a coordinated manner, the Respondent used to place orders to purchase shares of companies around the same time when foreign clients were placing orders to purchase/sell shares of the same companies through JSGCL.
5 Out of the total 184 instances of Day Trading in the account of the Respondent, 161 instances were directly related to the trading by foreign institutional and individual clients of JSGCL. Moreover, from the 19 instances of Position Trading, 8 instances involved synchronization of trading and placement of orders by the Respondent with foreign clients. The Respondent transacted a total of 6,047,789 shares in 32 scrips in Day Trading Instances, which coincided with the placement of orders and trading by foreign clients. As a result of such Day Trading instances, the Respondent earned a cumulative profit of Rs. 3,939,473 in her account. The scrip-wise trading by the Respondent and the consequent profit earned is enumerated in the Table below.
Table-1 Sr. Company Name Traded Shares Profit (Rs.)
1 Al-Abbas Cement Industries Limited 100,000 38,319 2 Allied Bank Limited 12,229 4,892 3 Adamjee Insurance Company Limited 417,087 373,933 4 Azgard Nine Limited 200,000 5,672 5 Attock Petroleum Limited 15,905 18,630 6 Bank Al-Falah Limited 319,600 59,698 7 Dandot Cement Company Limited 1,690 (576)
8 EFU General Insurance 4,800 7,426 9 ENGRO Corporation Limited 246,003 211,505 10 Fatima Fertilizer Company 25,000 8,595 11 Fauji Fertilizer Company 175,000 348,794 12 Habib Bank Limited 49,000 27,626 13 Hub Power Company Limited 150,000 58,000 14 IGI Insurance Limited 20,472 8,373 15 Indus Motor Company Limited 54,699 126,150 16 JS Bank Limited 167,000 41,869 17 Jahangir Siddiqui & Company Limited 1,399,452 509,448 18 Kot Addu Power Company 380,000 251,075 19 Lucky Cement Limited 433,163 260,824 20 MCB Bank Limited 442,441 501,697 21 National Bank of Pakistan 61,000 43,624 22 Nishat Mills Limited 1,000 100 23 National Refinery Limited 4,000 5,521 24 Oil & Gas Development Co. Limited 239,611 124,345 25 Pakistan Int. Container Terminals 100 76 26 Packages Limited 36,000 86,519 27 Pakistan Petroleum Limited 59,000 77,673 28 Pak Suzuki Motor Company Limited 2,500 (90)
29 Pakistan State Oil 442,902 507,399 30 Pakistan Telecommunication Co. Ltd 265,000 78,757 31 Sui Northern Gas Pi elines Limited 70,000 46,982 32 United Bank Limited 253,135 106,617 TOTAL 6,047,789 3,939,473 6 It was noted that over 72% of the synchronized trading by the Respondent in the Day Trading instances matched directly with the corresponding trades of foreign clients. In addition to the same, majority of the trading by the Respondent and foreign clients was conducted through same terminal ID of JSGCL, i.e., REM14908, which is located at the Head Office of JSGCL, 6th floor, Faysal House, Shahrah-e-Faisal, Karachi.
7 It was further observed that the corresponding trading by foreign clients in the same trading instances as conducted in the account of the Respondent during Day Trading was quite significant.
The trading of foreign clients in same trading instances as that of the Respondent amounted to over 106 million shares.
8 Considering the nature of trading by the Respondent and her connection with corresponding trading by foreign clients of JSGCL, the account details including account opening form, trading statement, financial ledger, copies of trading orders, and details of receipts and payments for the Respondent were obtained from JSGCL. The analysis of information received from JSGCL revealed that the Respondent had opened her brokerage account on March 02, 2010. In addition to this, it was also noted that the Respondent had her only active brokerage account at JSGCL and had very insignificant prior trading history. In addition to the information received from JSGCL, the identity details of the Respondent were also obtained from National Database and Registration Authority, which clearly revealed that the Respondent is the mother of Mr. Muhammad Atif Malik, who at the time of trading by the Respondent was the Vice President and Head of International Sales at JSGCL.
9. The trading pattern of the Respondent and its significant synchronization with trading of foreign clients of JSGCL along with the observation of strong relationship of the Respondent with Mr. Muhammad Atif Malik, prima facie, established that Mr. Muhammad Atif Malik, being an insider, by virtue of his position as Vice President and Head of International Sales at JSGCL, had passed on/ disclosed the inside information relating to large trading orders received from foreign clients to his mother, based on which she indulged in insider trading and earned significant amount of profit.
Consequently, SCN was issued to the Respondent to explain as to why action should not be taken against her under Section 15E of the Ordinance. The Respondent was required to appear in person or through an authorized representative before the undersigned at the Commission's Head Office on June 23, 2011 for a hearing.
10 The Respondent provided her written response to SCN dated June 18, 2011, wherein the following submissions were made:
(a) The Respondent admitted that she sought help in trading from her son, Mr. Muhammad Atif Malik.
(b) The Respondent asserted that she was not aware of the consequences of such type of action as she was not aware of the rules and laws.
(c) Finally, the Respondent admitted her offence and assured that she would refrain from all such actions in the future.
(d) The Respondent prayed that a lenient view may be taken in the matter.
11. On the date of hearing, husband of the Respondent, Mr. Sher Mohammad Malik ("Authorized Representative") appeared before me and reiterated the submissions as made in the written reply stated above. The Authorized Representative assured that in the future the Respondent would be more vigilant and would not be involved in any kind of violation of law. Additionally, the Authorized Representative prayed that keeping in view the submissions in the case, the Commission may take a lenient view in this matter.
12. I have examined the facts, evidences and documents on record, in addition to written and verbal submissions of the Respondent. It is established that Mr. Muhammad Atif Malik was an insider by virtue of his position and employment at JSGCL, where normally he received material non-public information relating to large trading orders of foreign clients. It is further established that Mr. Muhammad Atif Malik provided information relating to large trading orders of foreign clients to the Respondent. Subsequently, the Respondent indulged in insider trading in her account on the basis of the inside information and earned significant amount of profit of approximately Rs.
3,939,473.
13. In view of foregoing, whilst giving due consideration to the prayer of the Respondent to take a lenient view in the light of Respondent's apologetic submission of her offence, in exercise of powers under Section 15E (1) of the Ordinance, I hereby impose on the Respondent a fine of Rs. 4,000,000/- (Rupees Four Million Only) for contravention of sub-section (1) of Section 15A of the Ordinance..
14. In the similar measure, the Commission has also taken enforcement action against Mr. Muhammad Atif Malik and has imposed fine on him for passing on/ disclosing inside information pertaining to foreign clients' large trading orders to the Respondent under Section 15E (3) of the Ordinance.
15. This matter is disposed of in the above manner and the Respondent is directed to deposit the fine as mentioned in paragraph 13 above in the account of the Commission being maintained in the designated branches of MCB Bank Limited not later than thirty (30) days from the date of this Order and furnish the copy of the deposit challan to the undersigned.
16 .This Order is issued without prejudice to any other action that the Commission may initiate against the Respondent in accordance with law on matters subsequently investigated or otherwise brought to the knowledge of the Commission.