Investment in securities: media barred from giving advice
ISLAMABAD (April 05 2008): The Securities and Exchange Commission of Pakistan (SECP) has barred the analysts of print and electronic media from giving investment advice pertaining to the securities market without reasonable basis/justification and supportive documents backed by market research/analysis.
The SECP has also decided, to protect rested interests, to take action against persons found violating provisions of Securities and Exchange Ordinance, 1969 to protect rested interests. The violators may face punishment including imprisonment for a term which may extend to three years, or fine up to Rs 500, or both.
The SECP on Friday issued Circular 1 of 2008, giving securities market guidelines for media relating to securities’ market to Pakistan Electronic Media Regulatory Authority (Pemra), stock exchanges, the All Pakistan Newspaper Society (APNS), and Mutual Funds Association of Pakistan. According to the guidelines, research analysts study companies’ trading and make recommendations on the securities of those companies.
They considerably influence the marketplace. Analysts’ recommendations can influence the price of a company’s stock, especially when the recommendations are widely disseminated through television appearances or through other electronic and print media, the SECP said.
The mere mention of a company by a popular analyst can temporarily cause its stock to rise, or fall, even when nothing about the company’s prospects of fundamentals has recently changed.
Moreover, it has been observed that many people in the capital markets are providing their views/opinions on the level which the index is expected to reach. The general public relies on their views to make their investment decisions, without having knowledge of the fact whether such views have any reasonable basis or whether the person giving such views has any conflict of interests.
The SECP has issued minimum guidelines for ensuring compliance. Under the guidelines, it is the duty of every person, including analysis and media personnel who are giving investment advice in public in relation to securities markets in Pakistan, to ensure that they have reasonable basis/justification for giving the advice ie the advice is supported with proper research and analysis.
They should also properly disclose any conflict of interests before giving the advice. According to the SECP, section 17 (prohibition of fraudulent acts, etc) of Securities and Exchange Ordinance, 1969 provides for protecting the interests of general public against malpractice’s in the capital markets.
The section 17 says, “No person shall for the purpose of inducing, dissuading, effecting, preventing or in any manner influencing or turning to his advantage, the sale or purchase of any security, directly or indirectly:
“(b) make any suggestion or statement as fact of that which he does not believe to be true or
“(c) omit to state or actively conceal a material fact having knowledge or belief of such fact or;
“(d) induce any person by deceiving him to do or omit to do any thing which he would not be or omit if he were not so deceived”.
The SECP said that action will be taken against persons who are not found in compliance with the above provision under section 24 of the SE Ordinance, 1969, which provides for imprisonment for a term which may extend to three years or fine which may extend to five hundred thousand rupees, or both.
In order to ensure that a person complies with the afore-mentioned provisions of the Securities and Exchange Ordinance.1969, the following procedures are to be followed:
1. REASONABLE BASIS: Individuals must have reasonable and adequate basis, supported by appropriate research while making any recommendations, or expressing investment-related views/opinions on media relating to securities. However, this shall not include communications that are limited to the following:
2. COMMENTARIES ON ECONOMIC, POLITICAL OR MARKET CONDITIONS: Technical analyses concerning the demand and supply for a sector index or industry based on trading volume and price; Statistical summaries of companies’ historical financial data.
The SECP said that if the individual is making use of a third-party research, he must make reasonable and diligent efforts to determine whether such research is sound. Furthermore, if an individual has reason to suspect that the third-party research or information comes from a source that lacks a sound basis, the individual must refrain from disseminating such information.
DISCLOSURE OF CONFLICT OF INTEREST: While expressing any recommendations, actions and other investment-related views/opinions on media, the individual expressing them must disclose all conflicts of interest in a timely, clear and prominent manner.
Conflict of interest can be deemed to arise if the individual or their immediate family members have or intend to hold personal investment or carry out trading activities, in such securities, the SECP said. ‘Immediate family’ shall include spouse, children and other dependents/family members.
About the compulsory retention of records, the Commission added that individuals expressing any recommendations, actions and other investment-related view/opinions in media must maintain appropriate record to support their recommendations, action and to their investment-related views/opinions for duration of at least 6 months.
Source: Business Recorder
Date:4/5/2008
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