The Apex regulator has found that various stock brokers surpass the rules regarding the proper documentation of the acquisition of subordinated loans, their use and the conditions for repayment
"Subordinated loan is in no way used for any other purpose, including margin financing / margin trading (which replaced the old badla system)," said an earlier SECP circular
Apart from this, brokers were not allowed to provide banking services such as accepting deposits, it said.
"Subordinated loan will only be used by the broker with the aim of increasing the equity / assets, liquid assets or any other target approved by the Commission," it added.
The last SECP circular noted that subordinated loans were not documented through a formal agreement between the lender. The broker and minimum duration, repayment terms and repayment schedule were not part of the loan agreement.
The required certificate from an accountant is also not available from brokers for injecting funds as subordinated loans.
No details are mentioned with regard to the use of the loan. Prior approval of the SECP for the repayment of the subordinated loan is not obtained in the case of repayment.
"The Commission has taken a mild look this time and offers the last chance to the non-compliant intermediaries to ensure compliance … in letter and spirit", reported the notification
Earlier in 2017, the SECP had noted that some stockbrokers were involved in unauthorized deposits in one form or another.
In the past, the stock market had undergone a huge crisis in 2008, when the undocumented system for financing securities called badla was identified as one of the main reasons
Brokers have repeatedly demanded that the regulators allow them to revive the old financing system. On the other hand, many brokers have led the system unofficially, it has been learned.
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