Staff Reporter
Karachi
The draft Stockbrokers Regime (SRO No. 26 (I)/2020 dated 10-01-2020) dividing, Stockbrokers into three categories has been proposed by SECP, without considering some important facts namely: Stockbrokers are fully documented and so are their clients. Client’s assets in the custody of broker stay segregated from own assets of the broker 24/7. Majority of the stock brokerage houses are family owned “private limited companies”.
Some are even third generation brokers. The relationship of brokers with their clients is based on long standing mutual trust.
The Regulator (SECP) seems to have ignored the fact that if a Big Broker who is authorized to hold custody of clients of other brokers and also to settle their trades, defaults, he will take with him many others and create a huge crisis for the market. Concentration of risk in a few hands is against the golden principle of risk management: “keep your risk as much widespread, as possible.
If the object of the Regulator is to safeguard the assets of the clients only, the same could be achieved without putting 70% of the brokers out of business and simply by making opening of an investor account mandatory by the clients and letting the clients have their sale proceeds through DPS. The proposed Broker Regime if implemented as it is, without any meaningful consultation with the actual stakeholders the Capital Market may suffer an irreparable loss which all of us may later, regret.
To ask stockbrokers, operating as a family owned “private limited companies” to have 2 outside directors is totally unacceptable. The stress and weight be given to experience and track record of the brokers. Particularly, when section 153(k) of Companies Act, 2017, restricts any broker to serve as director on any listed company, then how on earth broker will find an Independent Director. To direct stockbrokers to have their accounts audited by Category “A” auditors of SBP Panel, (being very small in number) not only reduces the options of the broker but also would add to their cost and also give rise to monopolies. The brokers unlike banks do not solicit deposits from clients which the banks put to their own use.
On the other hand, the assets of the clients cannot be used by the broker but for the benefit of the client. The onerous conditions proposed to be imposed by the SECP especially on “Trading & Self Clearing” and “Trading Only” Brokers deserve to be made humane.
