IN THE LIGHT OF IOSCO PRINCIPLES, SECP IS SUCCESSFULLY PROTECTING

THE INTERESTS OF INVESTORS; CONSIDER THE STATEMENT UNDER

RELEVANT PROVISION OF SECURITIES ACT 2015.

Habib Orakzai

LL.M

IOSCO is the leading international policy forum for securities regulators and is recognized as the
global standard setter for securities regulation. It aims to protect the interest of investors and their
confidence on the integrity of security markets by developing and maintaining internationally
consistent standard for regulation, oversight and enforcement and to maintain fair, efficient and
transparent markets. Pakistan, being member of the IOSCO, has over the period of time made
significant improvements to bring the structure and policies of security markets in consonance
with the aims and objectives of IOSCO. The Securities Act, 2015 is the result of efforts made by
SECP to meet the IOSCO standards of securities markets. This assignment will highlight
relevant provision where under SECP via Securities Act, 2015 successfully adopted the stated
principles of IOSCO to protect the interest of investors. Every head in this assignment will
discuss a stated principle of IOSCO with its reciprocal provision enunciated in Securities Act,
2015 in the light of investor protection. It is also pertinent to mention here that, the provisions of
Securities Act, 2015 over all drafted for the purpose of protecting the interest of investors, yet to
meet with the standards of IOSCO principles, regular development and progress is underway.

DISCLOSURE/PROSPECTUS

Principle 16 of IOSCO enumerates that, “There should be full, accurate and timely
disclosure of financial results, risk and other information that is material to investor’s
decisions” whereas,

In response to above principle, the Securities Act, 2015 provides broader guidelines for issuing
of public offers via prospectus mandating to mention therein full disclosure of information of all
types. Part XIII, sections 87 and onward deals with the point in hand with directives that, the
issuer must obtain approval of Commission before issuing any public offer. This Part of the
Securities Act, 2015 also provides for criminal liability wherever, it is found that, the
information is false, deceptive or misleading. SECP has, in practice, adopted requirement from
issuer companies to publish prospectus in English as well as in Urdu. This step is taken as
mostly, the investors are not conversant with English.

Principle 17 of IOSCO provides that, “Holder of securities in a company should be treated in a

fair and equitable manner”.
Section 101 to 107 of the Part XIII also binds the executive officers, directors and others holding
the major positions to disclose their shares in the listed equity securities of the company. These
provisions are important to manage conflict of interest. Moreover, the Takeover Regulations
require immediate disclosure by the acquirer and the target company, to the shareholders of the
target company, wherever there is any intention/likelihood of acquisition/change of control of a
listed company. Such information is immediately released by the stock exchanges for public
dissemination. Such provisions show that, SECP have done great efforts to guard minority
shareholders rights and played an important role in enhancing and guaranteeing a higher level of
investor protection.

AUDIT AND ACCOUNTS

Principle 18 provides for “Accounting standards used by issuer to prepare financial statements
should be of a high and internationally acceptable quality”.

Sections 16 and 17 (along-with others separately mentioned for Clearing Houses, CDC, Part VII
etc) deal with the accounts and audit and appointment of auditor, including special auditor, by
Commission respectively to conduct audit and submit report in the prescribed form.

REGULATED SECURITIES ACTIVITIES

Principle 29 of IOSCO enumerates that, “Regulation should provide for minimum entry
standards for market intermediaries”

Part V of the Securities Act, 2015 deals with the regulated securities activities and states that,
“no person shall carry on regulated securities activity unless licensed by the SECP. For the
purpose of this Act, “regulated securities activity” includes

 Securities broker,
 Securities advisor,
 Securities manager,
 Share registrar,
 Credit rating company,
 Balloter,
 Underwriter,
 Debt security trustee; or
 Any other activity as may be notified by the Federal Government

In addition, to ensure transparency and governance, all brokers are required to appoint audit
firms as per panel specified by the State bank of Pakistan.

CONDUCT OF REGULATED SECURITIES ACTIVITIES

According to Principle 31 of IOSCO, “Market intermediaries should be required to
establish an internal function that deliver compliance with standards for internal
organization and operational conduct, with the aim of protecting the interests of clients
and their assets and ensuring proper management of risk, through which management of
the intermediary accepts primary responsibility for these matters”

The corresponding provisions to deal with the above principle are the Part VI of Securities Act,
2015. Section 63 of the Securities Act, 2015 dictates the standard of conduct of the regulated
securities activities. In subsections of section 63, it provides for segregation of clients assets and
funds and the avoidance of conflict of interest besides observing high standards of market
conduct. Section 148 of the Securities Act, 2015 provides that, a licensed person shall not file a
petition for winding up unless it satisfies the Commission that it has settled all outstanding
investor’s claims as per default regulations and obtained prior approval of the Commission. The
Commission may in the interest of public or in the interest of investors, impose such other
conditions as it deems appropriate. The court can also refuse to entertain the petition for winding
up is the above requirements are not fulfilled.

TRADING SYSTEM SHOULD BE SUBJECT TO REGULATION

Principle 33 enunciates that, “The establishment of trading systems including securities

exchanges should be subject to regulatory authorization and oversight.”

Part II, section 3 to 20 clearly deals with the establishment of securities exchanges under the
license granted by the SECP under section 5 of the Securities Act, 2015. Part II of the Securities
Act, 2015 accounts for, licensing, eligibility requirements, grant of license, duties, regulation of
securities exchange and audit and accounts. Broadly, the SECP has the power it needs in
law to license and oversee exchanges.

MONITORING AND SUPERVISION

Principle 34 of IOSCO states that, “There should be ongoing regulatory supervision of

exchanges and trading systems which should aim to ensure that the integrity of trading
is maintained through fair and equitable rules that strike an appropriate balance
between the demands of different market participants”.

The exchanges periodically report to the SECP on intermediaries’ conduct, among other
things, reporting for example a list of enforcement actions, the status of pending investor
complaints, and progress made in proceedings in case of default by members. The exchanges
also submit annual report. All these actions are taken under Part II of the securities exchange
Act. 2015.

TRANSPERANCY AND FAIRNESS

Principle 35 “Regulation should promote transparency of trading”.

Principle 36 “Regulation should be designed to detect and deter manipulation and other
unfair trading practices”.

In this regard, the preamble of the Securities Act, 2015 is more relevant which states that,
“Whereas, it is expedient to amend and consolidate that law for regulation of the securities
industry, the protection of investor and for the matters connected therewith or ancillary thereto”.

Protection of investor primarily requires transparency and fairness in the securities industry and
for that purpose Securities Act, 2015 is promulgated. The provisions of licensing, regulations,
auditing, investigation and monitoring on almost every sphere of the activities provided in the
said Act speaks for compliance of the principles of IOSCO. Moreover, sections (127 to 136)
regarding market abuse clearly show the seriousness of SECP to progressively implement the
principles of IOSCO.

In the light of above provisions, it could safely be conclude that, SECP is successfully protecting
the interest of investors by taking different steps and amending the Securities Act, 2015 in the
light of IOSCO principles.