KARACHI: Pakistan Stock Exchange Limited (PSX), National Clearing Company of Pakistan Limited (NCCPL) and Central Depository Company of Pakistan (CDC) in reply to media reports on default of stock brokers with insinuations that they have not performed their job well narrated that there is a well-defined and properly structured regulatory regime under which stock brokers (in technical terms, Trading Rights Entitlement Certificate (TREC holders) have to operate. Highlighting domains of every regulator, PSX’s function is to manage investors’ share, buy or sell orders are executed on PSX’s trading system in a timely, efficient and secure manner by brokers and act as front-line regulators to see that brokers are in compliance with rules and regulations of the SECP and PSX. NCCPL’s function is to ensure that once orders have been executed the clearing and settlement proceeds smoothly and that no market risk due to non-settlement occurs. CDC’s function is to act as a depository of investors’ shares which have been transferred from NCCPL into their investment account or, as per their instruction in their brokers’ sub-account under the investor’s name. These capital market institutions operate under their own rules and regulations covering their specific area of operations and overall and fall under the supervision of SECP. There is close collaboration between SECP and PSX/ NCCPL/ CDC not only on regulatory matters but also in the area of capital market development and investors’ facilitation and protection. Report said there are clear rules on how the brokers should deal with their investor clients under SECP’s guidance the capital market institutions have also created safeguards to protect investors’ interest. Opening an account with a broker as well as with the CDC, an investor has the option of instructing the broker to have all his/her shares placed in an ‘Investor Account’ at the CDC and not in broker’s sub-account. Investors having their shares in a CDC Investor Account and wish to sell their shares, must give clear instructions to the CDC to transfer shares to the broker’s sub-account in their name and then instruct the broker to sell these shares. CDC is there forthe protection of investors and it is mandatory for investors to specify how they wish to receive their statements of shares held at the CDC, either by e-mail or courier service. CDC also has service where every single movement of shares from the investor’s account is sent by SMS to his/her mobile phone. An investor can access the CDC website by using a password provided, find out what shares in the Investor Account or broker’s sub-account are present and if any shares have been pledged as collateral for borrowing purposes. In case of any difference, an investor can enquire from the broker and if not satisfied, can lodge a complaint with the CDC and even the PSX on their website. NCCPL also provides a facility to investors for their protection. An investor with a valid Unique Identification Number can see his history of buy and sell transactions that are done by the broker on his/her behalf. Capital market institutions and SECP under an evolved system of checks and balances do periodic audits of brokers as well as spot inspections. In case of discrepancies CDC sends out notices and letters to investors having a CDC account balance details and asks investors to verify these balances. When there isn’t a match, CDC immediately contacts the broker to explain the difference and rectify the discrepancy by giving the broker a chance to explain. In case of a failure to do so, a CDC penalty is imposed on the broker with notification to SECP, PSX and NCCPL. That broker can also be suspended as per laid down regulations. PSX and NCCPL on non-compliance of brokers following these lines and at the same time, SECP also checks broker compliance and imposes penalties and actions on non-compliance. Despite these measures, there are cases where investors have lost shares due to some brokers’ illegal behavior. In some cases it has also come to light that investors themselves have given loans to brokers and received fixed monthly returns which is a completely illegal activity by both parties under the relevant regulations. In September 2015, SECP took a major initiative to notify Joint Inspection Regulations under which a specific Joint Inspection Team (JIT) was formed. JIT operating under supervision of JIT Oversight Committee composed of Chief Regulatory Officers of CDC, NCCPL and PSX. Every quarter, sixteen to eighteen brokers are randomly selected for inspection with final report of the inspection to be submitted to JIT Oversight Committee in 75 days from the start of inspection. Upon JIT’s final report the committee informs the SECP and asks the respective capital market institutions to take regulatory action against the broker if non-compliance is confirmed.