Investor Protection at PMEX 

Market participants such as hedgers, investors and traders are the pillars of the futures market. They determine the level of activity in the market by placing funds for trading, hedging or investing purposes, thereby contributing towards enhancing the trading volumes. Therefore, ensuring the protection of the market participants is very critical for the growth and development of the futures market in Pakistan.

PMEX fully understands that investor protection plays a crucial role in enhancing investor confidence and contributing to market growth. Therefore, to protect the interests of investors from malpractices and to provide a fair and transparent futures market, the Exchange has undertaken various measures since its inception. These measures have helped the Exchange in building trust and empowerment amongst the market participants. The measures taken by the Exchange include, but are not limited to the following:

  1. Promulgation of Rules and Regulations
  2. Segregation of Broker-Client Funds
  3. Direct Fund Model
  4. Investor Education
  5. Investor Grievance Redressal
  6. Investor Protection Fund
  7. Settlement Guarantee Fund

Promulgation Market Rules and Regulation

Over the years, PMEX has been constantly developing its regulatory framework keeping investor protection as the main focus of the regulatory regime. The rules and regulations have been developed to ensure transparency in operations and mitigate risks related to futures trading. The Exchange closely monitors the working of its brokers to ensure that they follow the regulations in letter and spirit. If any broker violates the rules, the Exchange takes necessary actions against the said broker that may include but are not limited to the issuance of warning letters, imposition of financial penalties and suspension of trading rights.

Segregation of Funds 

A critical element of risk management at the Exchange is the segregation of Client and Broker funds, since the opening of a customer’s trading account. All broker positions and funds are always kept segregated from customers’ positions and funds. This modality ensures that customers’ funds are protected from any misappropriation/misuse by the broker.

Segregation of Funds is a necessary step, which ensures the integrity of the broker-customer relationship at the Exchange. All positions and margins are monitored in real-time. Further, all trading accounts must explicitly fulfill margin requirements independent of other accounts.

Direct Fund Model

Another key measure for ensuring investor protection is the introduction of the Direct Fund Model (DFM). Under this arrangement, the customers can deposit their margins directly with the Exchange, as well as, take withdrawal directly into their bank accounts without the involvement of broker(s). The DFM empowers the customers to get complete control over their funds at all times and restricts the role of the brokers primarily to servicing the existing customers and soliciting new businesses.

Investor Education 

For a better understanding of the commodity futures market, PMEX conducts awareness sessions for the market participants through webinars, seminars and workshops. In these programs, investors are informed about the futures contracts listed at the Exchange, its electronic trading system, account opening, funds deposits and withdrawal processes. This enables market participants to make informed decisions while trading futures contracts. Further, the Exchange also issues trading guidelines on regular basis to create awareness among the brokers and its customers with regards to their rights and responsibilities.

Redressal of Investor Grievances 

PMEX has put in place a robust and comprehensive process for the redressal of investors’ complaints against the brokers. In case of any grievance, the aggrieved party has to lodge a complaint with his/her broker and try to find an amicable solution. If the broker fails to resolve the matter, the investor can lodge a complaint against the broker to PMEX.

After a complaint is received, the Exchange takes up the matter with the concerned broker for its comments and takes all necessary steps for the resolution of the matter. The Exchange also provides an opportunity to the parties to resolve their issues amicably and may provide the forum for discussion. The Exchange role is such discussion is limited to apprising the parties about regulatory requirements or clarification of technical issues (if any). In case the dispute is not amicably settled through mediation, the disputing parties opt to apply for Arbitration in accordance with the procedures prescribed under Chapter 15 of PMEX Rulebook.

Investor Protection Fund (IPF)

The Exchange has established an Investor Protection Fund (IPF) to compensate the claims of genuine and bona fide investors in the event of a default of a broker.

Settlement Guarantee Fund (SGF)

The Exchange has also established a Settlement Guarantee Fund (SGF). This fund provides a cushion for any residual risk and operates like a self-insurance mechanism wherein brokers of the Exchange themselves contribute to the fund. In case a broker fails to meet his settlement obligations, the fund is utilized to the extent required for the successful completion of the settlement. This has eliminated the counter-party risk of trading on the Exchange. The market has full confidence that settlement shall take place in time and shall be completed irrespective of default of any broker.

 

 

 

 

 

 

 

Posted on January 19, 2022 in Uncategorized

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