Regulatory Framework
What the domain tests
This domain tests the legal hierarchy and the compliance duties that attach to a licensed broker. You must know who makes the rules, who enforces them, and which obligations follow from accepting a client or handling client assets.
Core rules
- The Securities Act, 2015 is the main securities-market statute; the Companies Act, 2017 governs company law and corporate disclosures; the AML Act, 2010 underpins anti-money-laundering and counter-terrorist-financing duties.
- SECP is the apex regulator. PSX acts as a front-line regulator and self-regulatory organisation for its members, but it cannot override SECP. CDC and NCCPL are licensed market infrastructure providers.
- A broker needs the appropriate SECP licence and a Trading Right Entitlement Certificate (TREC) to trade on PSX. Membership is not a substitute for licensing.
- Ongoing duties include fit-and-proper criteria, minimum net capital, segregation of client money and securities, accurate records, timely reporting, AML/KYC checks, and prohibitions on insider trading and market manipulation.
Worked example
A broker opens an account for a walk-in client, accepts a large cash deposit from a third party, and executes trades without obtaining identity documents or a UIN. The problem is not merely poor paperwork. The broker has breached KYC and AML obligations, failed to identify the beneficial owner, and accepted funds from someone other than the client. SECP and PSX can take disciplinary action, and the broker’s compliance officer should have blocked the account until verification was complete.
Traps
Assuming PSX membership alone authorises dealing; treating exchange rules as superior to SECP rules; ignoring record-retention and reporting duties; thinking KYC ends at account opening rather than continuing through the relationship.