This Order shall dispose of the proceedings initiated through Show Cause Notice ("SCN") No. SMD/MSW/FR-SA/69/2014-729, dated October 15, 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. Sana Anis, client of Munir Khanani Securities (Pvt.) Ltd.
2. Brief facts of the case are that Mrs. Sana Anis UIN 45504-1002649-0 is the client of Munir Khanani Securities (Pvt.) Ltd bearing Trading Account No. F-727, detail of which is as follows: {{TABLE}} Name Sana Anis Member Name M. Munir Khanani Securities (Pvt.) Ltd.
Client Code F727 Account Opening Date 15-Apr-11 {{TABLE}} 3. Review of trading record of Mrs. Sana Anis for the period starting from April 15, 2011 to August 24, 2014 ("Review Period") revealed that considerable amount of her trading matched with the trading of clients of Fawad Yousaf Securities (Pvt.) Ltd ("FYSL"). Detail of which is as follows: {{TABLE}} During the period Shares Total Buy 2,024,656 Total Sell 2,360,568 Total Buy and Sell of Sana Anis {{TABLE}} Transaction matched with FYSL clients From FYSL Shares %age Total Buy 352,151 17.39% Total Sell 1,421,317 60.21% {{TABLE}}
4. Detail of transactions carried out by Mrs. Sana Anis matched with the clients of FYSL are enclosed as Annexure - A, which reflects that most of the trades were 100% matched with the trades executed through Mr. Muhammad Anis for the clients of FYSL.
5. NADRA verisys of Mrs. Sana Anis revealed that she is wife of Mr. Muhammad Anis, who works with FYSL as KATS operator. Furthermore, Standard Account Opening Form of Mrs. Sana Anis shows that Mr. Muhammad Anis is her nominee. Mr. Muhammad Anis and Mrs. Sana Anis also have a joint hank Account # 1-2-13-20311-714403605 maintained with Summit Bank Limited.
6. In view of the above mentioned, it was observed that prima facie Mr. Muhammad Anis was providing material information pertaining to the orders of the clients of FYSL, to his wife Mrs. Sana Anis, which was available to him by the virtue of his position as KATS Operator at FYSL. Therefore, Show Cause Notice under Section 15 A read with Section 22 of the Ordinance was issued to Mrs. Sana Anis to show cause as to why penal action may not be taken against her under Section 15E of the Ordinance.
7. Mrs. Sana Anis did not respond to the aforesaid SCN. Therefore, a hearing in the matter was fixed on December 30, 2014. The hearing was attended by Mr. Muhammad Anis on behalf of Mrs. Sana Anis.
8. During the hearing proceedings, Mr. Muhammad Anis admitted the noncompliance with the provisions of the Ordinance and submitted the following arguments: He had been passing on information pertaining to the orders of clients of FYSL to his wife Mrs. Sana Anis to earn money to meet the personal expenditure.
Sana Anis and he himself was not aware of the fact that such activity is prohibited under the Law.
He belongs to a poor family. He had to earn money to marry his two sisters and meet his family expenses.
He is currently unemployed and do not have funds to pay any penalty, if imposed by the Commission.
He assured that he will comply with the relevant provision of law in letter and spirit.
He prayed that a lenient view may be taken in the matter.
9. I have examined the record available with the Commission and deliberation made during the hearing proceedings. It is evident that the Mr. Muhammad Anis being an insider disclosed the material non-public information relating to trading orders of the clients of FYSL, to his wife Mrs. Sana Anis, who traded in the scrips as stated in preceding paragraphs, which resulted in significant amount of profit to her owing to the availability of inside information.
10. Mrs. Sana Anis is involved in the front running of the clients of FYSL and earned an accumulated profit of Rs. 1,888,386/- (Rupees one million eight hundred eighty eight thousand three hundred eight six 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.
11. Mr. Muhammad Anis by virtue of his position/employment with FYSL 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;
12. In this regard, it has been established that Mrs. Sana Anis has violated the relevant provisions of the Ordinance, and traded based on the inside information pertaining to the orders of the clients of FYSL. Mrs. Sana Anis 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 1. 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.
2. In addition to the fine imposed under sub-section (1), such person,
(a) may be directed by the Commission, -
(I) to surrender to the Commission, an amount equivalent to the gain made or loss avoided by him; or (ii) to pay any other person who has suffered a loss, an amount equivalent to the loss so suffered by such person; and (h) 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
(c) may, where such person is registered as a broker or agent, be liable to cancellation of registration.
13. 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 themselves. By front running, the Broker or its officer acts in an unethical manner, putting his own interest above than that of his client, thereby causing a fraud. In fact the !CATS operator in the instant case was stealing a part of money from the clients which otherwise they won't have to pay.
14. In view of the above, I am of the considered view that Mrs. Sana Anis violated the provisions of the Ordinance. Therefore, in exercise of powers under Section 15E of the Ordinance, I hereby impose a penalty of Rs. 1,888,386J- (Rupees one million eight hundred eighty eight thousand three hundred eight six only) on Mrs. Sana Anis for trading based on the material information passed on by her husband Mr. Muhammad Anis pertaining to the orders of clients of FYSL, in violation with the provision of Section 15A of the Ordinance.
15. The matter is disposed of in the above manner and Mrs. Sana Anis 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.
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.