Compliance for Stock Exchange Broker 2/2
Compliance for Stock Exchange Broker
Continued Part of Regulatory Compliance applicable for Stock Exchange Broker as follows.
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.