Compliance for Stock Exchange Broker 1/2
Compliance for Stock Exchange Broker
We have compiled Regulatory Compliance applicable for Stock Exchange Broker as follows.
Compliance at client level
- Confirmations of the orders by the clients are required to be transmitted within 24 hours of the execution of the order.
- The Broker must not pledged any of the shares of the client.
- The Broker must compiled with all the requirements of Standardized Account Opening Form.
- All transactions by the clients in terms of buying, selling, payments, receipts, margins, commission are recorded in in books of accounts on timely, adequately and proper manner.
- Maintenance of record of credit and extension of credit.
- Maintenance of record of borrowing or lending of the client and
- Broker must not carried on any financing, borrowing and pledging activity in contravention of rules and regulations.
- Maintenance of order log register.
- Broker must send quarterly statement to each client.
Compliance on recording orders via telephone
- Receipts of client orders via telephone must be recorded.
- For mobile phone orders appropriate time of receipt of order must be recorded.
- Telephone recording system must ensure integrity, reliability and security.
- Adequate monitoring of telephone recording staff.
- Maintenance of telephone recording for not less than six months.
Compliance on Internet Trading
- Broker has sufficient infrastructure, internal control procedures and security measures to carryout internet based trading.
- The broker website meets all the requirements like;
- Basic explanation of security trading including definitions of common terms used on trading screen.
- General statement and information regarding the manner orders are accepted, processed, settled and cleared via internet.
- Disclosures of various risks of securities trading.
- Hyperlink of websites of Security and Exchange Commission of Pakistan (SECP) and Pakistan Stock Exchange (PSX) displaying various rules and regulations, rights and obligations.
- Rules and regulation of client broker relations, arbitration procedures.
Compliance on Contingency Plan for continuity of Operations
- The broker shall implement contingency plan with the approval of board of directors covering following requirements;
- Offsite backup of key records, systems and information and mechanism for recovery.
- Alternate ways of communication with employees, customers and regulatory body.
- Details of alternative service providers in case of disaster.
- Testing of contingency plans must be performed on regular basis.
- Broker must ensure that adequate infrastructure including system capability to ensure connectivity with primary and DR site of Pakistan Stock Exchange.
Compliance on Leveraged Trading
- The Broker must ensure that no transaction is executed in the leveraged market unless an appropriate agreement has been executed and;
The Broker has;
- Fully disclosed all the risks involved in the relevant transactions.
- Explained all the options to the client in respect of various financing facilities.
- Evaluated credit worthiness of the client.
- Maintained adequate records of agreement, disclosure of risks and explanation of available options.
Compliance on Trading by employees
- Broker must ensure that it has given written authorization for trading to its employees.
- Employees have submitted written undertaking stating;
- All trades by the employees shall be executed against their own respective unique identification numbers.
- Investment advice given by the employees to the clients are not in conflict of interest with their individual investments.
- The employees must not indulge in buying or selling securities of a company for their own account if they have an inside information of a company or any information of potential trade or deal which may affect price of the company.
- The employees must not be involved in buying or selling of securities for their own account if they have awareness of clients proposed deal, trades by brokerage house or based on any forth coming research report.
- Brokers must monitor trades of their employees on regular basis, any violation to be reported to audit committee or chief executive office and also submission of report to Pakistan Stock Exchange (PSX) and / or Securities and Exchange Commission of Pakistan (SECP).
- Broker must ensure code of conduct for employees as mandatory requirement to comply with rules and regulations.
Compliance for persons working as Agent
- Persons who are working as agents of the broker must obtain certificate of registration from Securities and Exchange Commission of Pakistan (SECP), this certificate is required to be renewed every year.
- Broker must maintain list of all agents in register.
- Broker must ensure that agents do not deal with his clients in his own name. Dealing includes receipt of cash and cheques from client and issue of receipts and memos.
- Broker must have an agreement with the agents specifying the scope of authority and responsibilities including review of authority given to them.
Compliance for Branch Office operating outside Pakistan Stock Exchange (PSX)
The Broker must ensure that;
- Certificate of registration of its branch office is obtained from Pakistan Stock Exchange (PSX).
- Its name is prominently displayed outside the branch.
- Certificate of registration is prominently displayed.
- All the managers of the branch offices have obtained certificate of registration from Securities and Exchange Commission of Pakistan (SECP), this certificate is required to be renewed every year.
- Business is done at the branch office in brokers’ name.
The Broker must keep and maintain all the clients’ related records / information of said branch office at its head office.
Compliance of segregation of clients’ assets
- Broker must ensure that assets belonging to their clients are kept separated from the assets of the broker.
- Broker must ensure that separate sub-accounts are maintained under his participant account in CDS for each of the client.
General Compliance requirements.
- Broker must ensure that all provisions of anti-money laundering act 2010, anti-money laundering and countering financing of terrorism regulation 2018 and its guidelines are compiled with.
- Broker has activated SMS and e-alerts services provided by CDC to its clients.
The above points of Compliance Stock Exchange Broker have been extracted from PSX rules. Complete rules can be downloaded from below link.
About the Article:
The author went for an interview in compliance department in one of the brokerage house and read the PSX rules book to review the compliance requirements.
He thinks to document the summary of compliance requirements for someone who wants to read the summary of compliance requirements of a brokerage house.