SECP to present March 2005 stock crash report to National Assembly

Posted on 12.21.06 by StockPK Team @ 1:18 pm    

Chairman Securities and Exchange Commission of Pakistan Razi-ur-Rehman has said that reinvestigation report against top five brokers would be presented before the National Assembly Standing Committee on Finance by the end of this month.

Talking to media men at SECP’s regional office here on Wednesday, he said that investigation against 88 brokers has been reinitiated which would be presented before NA Standing Committee within next two months.

He clarified media reports regarding retention and perseverance of data pertaining to March 2005 stock market crash and said that news reports contained a number of serious factual errors and hence warrant a correction of record by the SECP.

It had been incorrectly reported that the data of bid and offer pertaining to March 2005 was available with SECP prior to January 2006 and that it had ‘disappeared’ from the records of SECP thereafter. Furthermore, in his December 14, 2006 statement before the National Assembly Standing Committee on Finance & Revenue, Dr Tariq Hasan claimed that complete trading data for March 2005 period was available with SECP before he left.

He said that allegations made in the media and the claims made by Dr Tariq, were totally incorrect and without any factual basis and added that an abnormal level of activity was witnessed at the Karachi Stock Exchange (KSE) in March 2005 and thereafter KSE was directed by the SECP to provide complete trading data including order data (bid and offer) vide its correspondence dated April 11, 2005 and April 19, 2005, for the months of January, February, March and April of 2005. But KSE only provided data relating to executed trades whereas the data containing bid and offer was never provided to SECP.

The non-maintenance of order data by KSE was also highlighted in the report by the Task Force which had been constituted to investigate factors which had led to the March 2005 stock market situation.

“Pursuant to the recommendation of the Task Force to conduct a Forensic Investigation, SECP once again in August 2005 by virtue of its powers under section 21 of the Securities and Exchange Ordinance, 1969, directed KSE to provide complete trading record of trading activities at KSE for the period January-April 2005,” he explained and added that subsequently, KSE provided the executed trade data. However, in respect of bid and offer data, the Managing Director of KSE submitted a self explanatory note written by the Deputy General Manager & Head of IT Division and addressed to KSE Managing Director regarding the “Data Retention practice at KSE. The said note, dated: August 12, 2005, stated that considering the limited data resources of the exchange, the historical data retained by the exchange was limited to the extent of executed trades only.

He said the said note confirmed that KSE only had year wise data of the executed trades for five years and that the exchange simply did not possess such level of storage resources whereby the massive data of bid and offer could be stored within the exchange. This self-explanatory note by the Head of IT also stated that the management had proposed to the Board of Directors of KSE to have an independent data warehousing capacity in order to enable the exchange to retain the complete data of bid and offer. The Board of KSE had reportedly deferred the matter due to budgetary constraints.

“The cited KSE note clearly proves that contrary to the baseless claims made in some media reports, the order data (bid and offer) was never maintained by KSE and therefore the question of any such data disappearing from SECP records after January 2006 does not even arise since no such data was ever provided to SECP by KSE.”

Regarding delay in appointing forensic investigators he said that during the tenure of former Chairman Dr Tariq Hasan, SECP had on January 9, 2006, appointed a US-based firm Diligence to conduct a forensic investigation of the March 2005 stock market events.

However, no formal Terms of Reference were provided to Diligence at the time.

After the departure of Dr Tariq Hasan, SECP reinitiated investigation into the March 2005 stock market crisis in January 2006 and the SECP surveillance department compiled internal reports on three major brokerage houses by April 2006. Such reports were essential for the commencement of meaningful investigations by the investigators.

Conscious of the high financial costs of hiring of a foreign forensic investigation outfit, SECP made serious efforts to select a competent local firm to investigate allegations of stock market manipulation. In this context, SECP once again approached local accounting firms. However, each one of the ‘Big Four’ accounting & auditing firms, which otherwise did possibly have the ability to conduct such forensic investigation, could not be engaged due to their conflict of interest issues. SECP also approached a former NAB official, considered an expert in forensic investigations for this assignment, but he too declined the offer.

Having exhausted all avenues in its attempts to find a local company to conduct forensic investigation, the SECP again contacted Diligence on May 10, 2006 and the Commission approved the final TOR’s for Diligence on May 30, 2006, so Diligence were formally appointed by SECP on May 31, 2006 to conduct forensic investigation in the March 2005 stock market events in accordance with comprehensive terms of reference.

Source: The News