Derivatives Market Regulation in Pakistan
Domain 2 tests the Pakistani regulatory perimeter: who may operate a derivatives market, who may trade, what conduct is prohibited and which rulebook applies.
Core rules
- SECP is the apex regulator for securities and futures markets. PMEX is the licensed commodity futures exchange; PSX operates its derivatives/futures segment under PSX Regulations. Both sit under SECP, but exchange rulebooks differ.
- The Securities Act, 2015 provides the main securities-market framework; the Futures Trading Act, 2013 governs futures trading. AML/CFT obligations flow from the AML Act, 2010 and SECP AML/CFT Regulations.
- A broker must onboard clients with KYC, risk disclosure and suitability review, and must segregate client money and positions. Trading members and clearing members are separately approved.
- Prohibited conduct includes insider trading, front-running, market manipulation, wash trades, false reporting and unauthorised trading. Position limits and margin rules are regulatory tools, not optional exchange guidance.
Worked example
A client asks a PMEX broker to execute a large gold futures order before a scheduled economic release. The broker also has a proprietary position. The broker may not buy for the house ahead of the client order (front-running) or disclose the order. It must execute per instruction, record the order timestamp and manage the conflict. A wash trade with an affiliated account to create volume is market abuse even if no profit is made.
Traps
- Saying SBP regulates PMEX - SBP regulates banking and the money market; SECP regulates the exchange-traded derivatives market.
- Assuming PSX and PMEX have identical contract specs and margining.
- Treating KYC as a one-time account-opening form; ongoing monitoring is required.
- Ignoring recordkeeping: order and communication records must be retained and producible.