All securities brokers shall ensure compliance with the following Corporate Governance Code. The listed securities brokers shall ensure compliance with this Code in addition to the Code of Corporate Governance (CCG) applicable on listed companies as specified in the regulations of the securities exchange. In case where there is any inconsistency with the CCG, the provisions of the CCG shall prevail

1. Board of Directors

  1. A securities broker shall establish an effective board of directors (board), responsible for ensuring long¬term success and for monitoring and evaluating the management's performance. The size and composition of the board should reflect the scale and complexity of the securities brokers' business.
  2. The hoard is encouraged to have a balance of executive and non-executive directors, with the requisite skills, competence, knowledge and experience.

2. Responsibilities, powers and functions of board of directors

  1. The board should set the strategic objectives and ensure that necessary financial and human resources are in place for meeting those objectives. The board shall further ensure that significant policies have been formulated on the following issues, among others:
    1. governance, risk management and compliance issues;
    2. customer relations including customer awareness and a mechanism and timeline tier handling/resolving their complaints/grievances; and
    3. segregation of customer assets from securities brokers' assets.
  2. The board shall formulate and ensure adoption of a code of conduct/code of ethics to promote integrity of its business. its board, its employees and its accredited representatives, with special emphasis on measures for curbing any market manipulative activities such as front running, insider trading and other market abuse.
  3. The board shall devise an effective whistle-blower mechanism enabling all stakeholders, including employees and accredited representatives, to freely communicate their concerns about any illegal or unethical practices. The board would ensure that the interest of a whistle-blower is not prejudicially affected.
  4. The board shall appoint a Chief Executive Officer (CEO) to lead the management team, and exercise executive authority over operations of the company.
  5. Any casual vacancy occurring on the board shall be intimated immediately to the securities exchange. The board shall strive to fill such vacancy on the board as soon as possible.
  6. The board is encouraged to obtain fidelity insurance against risk of misconduct, negligence. or frauds committed by the officials of securities brokers

3. Meetings of the board

  1. The board should set the strategic objectives and ensure that necessary financial and human resources are in place for meeting those objectives. The board shall further ensure that significant policies have been formulated on the following issues, among others:
  1. The board shall meet at least once in every six months and be provided with appropriate and timely information. Provided that a securities broker licensed under the Trading Only category may comply with the above requirement on a voluntary basis.
  2. The board shall ensure that the minutes of meetings of the board are appropriately recorded.
  3. segregation of customer assets from securities brokers' assets.

4.Committees of the board

  1. The board may establish appropriate board committees in order to allow a more effective discharge of its duties.
  2. The board may define in writing the terms of reference of the various committees, explaining their role and the advisory authority delegated to them by the board. These terms of reference may be reviewed by the board on a periodic basis.
  3. The board is encouraged to form an audit committee which should preferably be constituted of independent/non-executive directors. At least one member of the audit committee, where formed, should have relevant financial/accountancy qualification/experience
  4. The main responsibilities of the audit committee may include the following:
    1. The board shall meet at least once in every six months and be provided with appropriate and timely information. Provided that a securities broker licensed under the Trading Only category may comply with the above requirement on a voluntary basis.
    2. The board shall ensure that the minutes of meetings of the board are appropriately recorded.
    3. segregation of customer assets from securities brokers' assets.

5. Appointment of senior management officers

  • Securities brokers shall have an appropriate and suitably qualified management team commensurate with the size and complexity of its business.

6. Awareness Programs for Directors

  1. Securities brokers are encouraged to make efforts to familiarize their directors with this Code, other applicable laws, and their duties and responsibilities
  2. Securities brokers shall ensure compliance of its directors with any mandatory certification requirements as may be specified by the Commission from time to time.

7. Auditors

  1. A securities broker shall have its statutory audit conducted from an auditor enlisted within Category "A" or "B" of the State Bank of Pakistan's Panel of Auditors.

8. Related party transactions

  1. The details of all related party transactions shall be placed before the board for review and approval.

9. Corporate and financial reporting framework

  1. Not later than four months from the close of the financial year, all securities brokers shall prepare and circulate an Annual Report to the Commission and the securities exchange. The Annual Report shall contain the following:
    1. Annual audited financial statements
    2. Directors' Report;
    3. A statement by the CEO that there are no transactions entered into by the broker during the year. which are fraudulent, illegal or in violation of any securities market laws.
    Provided that a securities broker licensed under the Trading Only category may comply with the requirement of inclusion of Directors' Report in its Annual Report on a voluntary basis.
  2. The quarterly and annual financial statements shall he approved by the board and the CEO. Provided that a securities broker licensed under the Trading Only category may comply with the aboN, e requirement in respect of quarterly financial statements on a voluntary basis
  3. The directors may annex statements to the following effect with the Directors' Report, prepared under Section 236 of the Ordinance:
    • The financial statements, prepared by the management of the company, present its state of affairs fairly, the result of its operations, cash flows and changes in equity;
    • Proper books of accounts of the company have been maintained;
    • Appropriate accounting policies have been consistently applied in preparation of financial statements and accounting estimates are based on reasonable and prudent judgment;
    • International Financial Reporting Standards, as applicable in Pakistan, have been followed in preparation of financial statements and any departures therefrom have been adequately disclosed and explained;
    • The system of internal control is sound in design and has been effectively implemented and monitored.
    • If the brokerage house is not considered to be a going concern, the fact along with the reasons shall be disclosed
    • The directors' report shall cover, loans, TFCs, Sukuks or any other debt instruments in which the company is in default or likely to default. There shall be a clear presentation with details as to the aggregate amount of the debt overdue or likely to become overdue and the reasons for the default/emerging default situation and the measures taken by the company to address and settle such default situation

10. Statement of Compliance with the Code.

All securities brokers, except listed securities brokers, shall publish a statement of compliance with
this Code in their Annual Reports.