SECP criticized by PSA for playing the ‘divide and rule’ card in NBR fiasco

January 28, 2020 (MLN): It seems like the feud between Securities and Exchange Commission of Pakistan (SECP) and PSX Stockbrokers Association (PSA), which ignited after the former proposed stern amendments to the brokers’ regime, refuses to die down.  

Instead, the tensions between the regulator and two thirds of the TREC holders have only intensified despite several measures taken from both ends to resolve the matter in an amicable way. Following a series of futile meetings, the PSA has sent another letter to the SECP, slamming it for playing the ‘divide and rule’ card.

“Firstly, the so called ‘Small Brokers’ term does not exist. PSX Stockbrokers Association being representative of more than 66% of the Brokers Fraternity has serious reservations on the Proposed NBR. Regulators approach to defuse the tension by using Small, Medium and Large Size Brokerage Houses is an effort to divide and rule”, the letter pointed out.

Furthermore, it stated that none of the objectives, used to float this NBR, can be achieved by merely increasing the Net-Worth of the Stock Brokers. Clearing and Settlement Risk, as envisaged as Primary Objective, do not exist.

“Stock Market declined by more than 50% from May 2017, from 53,500 Index to 28,000 Level without any clearing and settlement default. This clearly reflects the Exposure Margins, acquired by Front Line Regulators, have also minimized, if not eroded the existence of Clearing and Settlement Risk”, the letter added.

“As far as the Custody Risk is concerned, the Proposed NBR in fact increases the said risk, rather than reducing it. A simple calculation based on the parameters provided under the scheme would reveal that Stock Brokers would now be allowed custody by more than 200% of what is allowed currently” it further said.

Besides the many factors that were pondered upon in the press release, the PSA stated that the claim by SECP’s insider that 27 brokers have defaulted during last 10 years resulting in defaulting of Rs. 5.8 billion, is nothing but aggravating the situation as prior to Demutualization Stock Broker’s Membership Card was valued at Rs. 150 million. Moreover, it would have been much better had the names and amount of defaulted brokerage houses were also disclosed so as to give clearer picture. The average amount of Rs. 200 million defaults as being painted in the media is misleading.

For now, the SECP has summoned a meeting with the Pakistan Stock Exchange board, wherein it might discuss the New Broker Regime. It remains to be seen if the concerns of the brokers will be addressed or put on the sideline yet again.   

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