July 28 - Aug 03, 2003

The Securities and Exchange Commission of Pakistan (SECP) has detected 39 international brokerage houses in the country which were illegally raising huge funds from public in the name of securities, currency trading and investment in money market.

This was disclosed by the Chairman SECP, Abdur Rehman Qureshi at a press conference in his office. According to him the unscrupulous dealers, if not checked in time, might have caused another financial scam as created by the finance companies like Taj Company and cooperative societies in the past. The Chairman also released the list of such companies against whom the commission has already initiated action.

Recently, the Commission had published ads in newspapers warning the general public that the brokers have no legal cover and these elements after grabbing the savings may go into hiding.

It is interesting to point out that while the companies lead their offices in different towns of the country, one was operating right from the Karachi Stock Exchange (room 516).

According to the SECP's Securities Market Division, the so-called international brokerage houses incorporating under the company law are involved in soliciting clients for collecting deposits for investment through principals outside Pakistan, where the SECP has no jurisdiction. The types of investment offered include securities, currency trading, futures currency trading, money markets, securities index trading, commodity future, option, bonds etc.

The modus operandi of the companies is that individuals desirous of dealing in future market or foreign commodities and precious metals have to deposit in foreign exchange a sum of money as margin deposit with these companies.

Through communications services, the client makes a deal or takes a position on currencies or commodities with the principal abroad without involving actual delivery of foreign exchange/commodities. The difference between sale/purchase price is settled though margin account and in case of loss, the margin is replenished by the client.

The commission received complaints about these entities/individuals, claiming to be agents of international brokerage houses to make investment, which mostly were in international currencies and commodities through the Internet.

It was revealed that the brokerage houses to which such companies project themselves as agents are neither members of any stock exchange nor are registered with SECP as brokers or agents.

The SECP held that the activities of these companies pose a serious threat to the investors because these companies are allegedly involved in activities without any legal authority and regulatory framework. On receipt of reports from different circles about the involvement of such companies in dubious activities, the SECP through advertisement cautioned the general public that such brokers have no legal cover and chance of seeking relief or upholding their rights are improbable as in most cases, these unscrupulous dealers, after grabbing the savings of innocent people may go into hiding. The public was advised to ensure that stock brokers/agents they choose to work were duly registered/licensed by the SECP. It was also highlighted that these so-called brokers are not authorised to take deposits.

The SECP detected 39 illegal brokerage companies through undisclosed visits of the commission offers and on the basis of complaints received consequent to the SECP's advertisements.


The activities of these companies have been subject of discussion with the State Bank of Pakistan and it was concluded that such activities are not allowed in other countries as well, and hence be treated as illegal in Pakistan. It has been decided to adopt a coordinated strategy by the SECP and SBP to deal with the issue. It was further decided that the SECP would take necessary action against incorporated unauthorised houses and members of the stock exchanges involved in such business, while the SBP would take action against the remaining entities under the Banking Companies Ordinance.

Accordingly, show cause notice under Section 309 of the Companies Ordinance 1984 have been issued to 10 companies for doing activities ultravires to the Memorandum of Association and necessary decision in the matter of two companies has been taken, while the remaining eight cases are awaiting personal hearing as envisaged by the law.

The SECP is collecting information about 39 companies and if it is proved that these companies are engaged in these activities, similar action will be taken against them.