According to an order of the SECP Appellate Bench-I issued in favour of a securities company Wednesday, during the course of hearing the Respondents (SECP officials) stated that 96 cases of similar violations of different TREC holders of PSX (brokers) were identified. All cases except the case of the appellant (company) were forwarded to the PSX for adjudication because company''s CEO was also part of the PSX Board. Therefore, to avoid any possible conflict of interest, the Appellant''s matter was adjudicated by the SECP Securities Market Division.
The Bench has reviewed the argument of the company that being a frontline regulator of securities and capital market, Pakistan Stock Exchange (PSX) was an appropriate forum to deal with the alleged regulatory violations of the rules book.
The SECP Appellate Bench-I has allowed the appeal of the company and set aside the show cause notice and order issued by the Executive Director Securities Market Division SECP. The Bench has reviewed the contents of the impugned order; however, no such observations or findings are on record. Although the company''s representative has endorsed the assertion of the Respondent''s representative, yet for just adjudication, these relevant facts should have been part of the impugned order. Furthermore, the Bench is of the view that in certain laws, the Commission and the PSX have concurrent jurisdiction to adjudicate upon the regulatory violations; however, being a frontline regulator, regulatory violations should have been dealt with by the PSX itself. The Commission was competent to take cognizance of the matter under applicable laws; hence, the Appellant''s representative argument is not tenable. The order is in the matter of Appeal No. 40 of 2017, filed by the said company (Pvt) Limited (the Appellant) against the Order dated 28/04/17 (Impugned Order) passed by the Executive Director - PRPD (Respondent) under Section 22 of the Securities and Exchange Ordinance, 1969 (Ordinance) and Rule 8 of the Brokers and Agents Registration Rules, 2001 (Rules).
Brief facts of the case are that the Commission in order to assess the compliance of the regulatory framework regarding segregation of client''s assets, conducted a compliance review (Review) of the Appellant under Section 79 (3) of the Securities Act, 2015 (Act). The Review revealed that the Appellant was non-compliant with clause 4.18.1 clause 4.18.2 and clause 4.24 of the PSX Rule Book (the Rule Book). As per clause 4.18.1 and 4.18.2 of the Rule Book, Appellant was required to properly segregate the assets of the clients from its own assets and prohibition of using the funds and securities of its clients for any purpose other than as authorised by the client, respectively. Furthermore, in violation of clause 4.24 of the Rule Book, the Appellant received cash exceeding Rs 25,000 from its clients.
The Bench believes that required procedure to probe the alleged regulatory violations had not been followed by the Respondent (Executive Director SMD SECP). Therefore, the show cause notice (SCN) and the Impugned Order are against the verdicts of superior courts. The Apex courts have settled opinion: "When a thing was required to be done by law in a particular manner it should be done in that manner or not at all". In view of the afore-stated facts, the SCN and the Impugned Order are a sheer violation of binding legal precedents.
The SECP Bench has no doubt to conclude that; Firstly, the Respondent had no authority to initiate Review under Section 79(3) thereby, rendered all proceedings including issuance of the SCN and pronouncement of the Impugned Order, void ab initio. Secondly, PSX Rule Book violations should have been penalised under the provisions of same law therefore, penalty under Section 22 of the Ordinance is not sustainable. Thirdly, without mentioning the relevance to this case, vague reference of Section 22 of the Ordinance and Rule 8 of the Rules cannot be construed as desirable application of law, the SECP Bench added.