COMMODITY EXCHANGE
AND FUTURES CONTRACTS RULES
SRO279 (I)/2005, Islamabad, the 15th March, 2005.- In
exercise of the powers conferred by section 33 of the Securities and Exchange
Ordinance, 1969 (XVII of
1969), Federal Government, is pleased to make the following
rules, namely.-
1.
Short title
and commencement.- (1)These rules may be called the Commodity Exchange and
Futures Contracts Rules, 2005
(2) They
shall come into force at once.
2.
Definitions.-
(1)In these rules, unless there is anything repugnant in the subject or
context,
(a) “Act”
means the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of
1997)
(b) “Broker”
means any person who is registered with the Commission for the purpose of
engaging in the business of effecting transactions in
Commodity
Futures Contract for the account of others;
(c)
DELETED
(d) “Exchange”
means a Commodity Exchange as defined in the
Securities and
Exchange Ordinance, 1969 (XVII of 1969) ;
(e) “Member”
means a person admitted by the Exchange as a Member of the Exchange but it does
not denote a shareholder or equity holder of
the Exchange;
(f) “Ordinance”
means the Securities and Exchange Ordinance, 1969 (XVII of 1969).
(2) The words
and expressions used but not defined in these rules shall have the same meaning
as are assigned to them in the Ordinance, the Act and the
Companies Ordinance, 1984 (XLVII of 1984).
3.
No person to
operate without registration - DELETED
4.
Cancellation
of registration, etc. - DELETED
5.
Audit of
accounts of the Exchange.- DELETED
6.
Books of
account and other documents to be maintained and preserved by the
Exchange.- DELETED.
7.
Submission
of annual report by an Exchange.- DELETED.
8.
Submission
of periodical returns.-DELETED
9.
Members not
to engage in business without registration. - No member shall act as a
broker to deal in the business of effecting transactions in the Commodity
Futures Contract unless he is registered with the Commission under these rules.
10.
Application
for registration as a broker. - (1) A Member desirous of acting as a broker
shall make an application to the Commission in a form specified by the
Commission from time to time, for grant of a certificate of registration
through the Exchange of which he is a Member.
(2) An
application for registration under sub-rule (1) shall be submitted along with a
fee as specified by the Commission from time to time
(3) The
Exchange shall forward the application to the Commission within fourteen days
from the date of its receipt.
11.
Eligibility
for registration. – (1) A person shall be eligible for registration as a
broker under these rules, if he-
(a) is
a Member of the Exchange;
(b)
is not less than twenty-one years of age;
(c)
is a citizen of Pakistan;
(d) has
at least passed graduation or equivalent examination from an
institution recognized by the Government; Provided that the
Commission may relax the educational qualification in suitable cases on merit
having regard to the applicant’s experience;
(e) is
not a lunatic or a person of unsound mind;
(f)
has not been convicted of an offence involving fraud or
breach of trust;
(g)
has not been adjudicated as insolvent or has suspended
payment or has compounded with his creditors;
(h)
has experience of not less than five years in the
business of buying, selling or dealing in commodities, Commodity Futures
Contracts or other securities;
(i) has
not been a director of a brokerage company which has been convicted of an
offence concerning brokerage;
(j)
has not defaulted in payment of dues at a clearing
house;
(k) has
not defaulted in compliance with the provisions of the Ordinance, the Act, and
the rules and regulations made hereunder;
(l)
is not in default on settlement of an investor
complaint where such complaint has been adjudicated by an exchange or a
committee of an exchange or the Commission;
(m)
has complied with the directives of the Commission in
respect of business conduct, dealings with clients and financial prudence; and
(n) has
the minimum net capital and minimum net worth as determined by the Exchange and
approved by the Commission from time to time.
(2)
The applicant shall remain in compliance with the
requirements of sub-rule (1) at all times and inform the Commission immediately
when he is noncompliant with any of the terms and conditions.
(3)
Every applicant which is a corporate entity shall have
at least one director who will satisfy the requirements set forth under
sub-rule (1) above, provided that net worth and net capital of the corporate
entity are used to fulfill the requirements set out under sub-rule (1) n.
12.
Certificate
of registration. - (1) The Commission, if it is satisfied that the
applicant is eligible for registration as a broker, and that it shall be in the
interest of the commodity market to do so, may grant certificate of
registration to the applicant in accordance with a format specified by the
Commission from time to
time.
(2)
The certificate of registration of a broker shall be
valid for one year.
(3)
The Commission shall send an intimation of registration
under sub-rule (1) to the concerned Exchange.
(4)
No application made under sub-rule (1) of rule 11 shall
be refused except after giving an applicant a reasonable opportunity of being
heard.
(5)
In case the Commission refuses the grant of certificate
of registration to an applicant after providing an opportunity of being heard
under sub-rule (4) , the decision shall be communicated to the applicant as
well as the concerned Exchange within fourteen days of the last hearing given
to the applicant, stating therein the grounds for refusal.
(6)
An applicant aggrieved by the decision of the
Commission under sub-rule (5) may apply, within a period of thirty days from
the date of receipt of such intimation, to the Commission for review of its
decision.
13.
Effect of
refusal for registration. - A person whose application for grant of a
certificate of registration as a broker has been refused by the Commission from
and on the date of receipt of the decision under sub-rule (5) of rule 13 shall
not deal in Commodity Futures Contracts as a broker.
14.
Renewal of
registration.-(1) the certificate of registration shall be renewable on
payment of fee as specified by the Commission from time to time.
(2)
The broker desiring renewal of his registration with
the Commission, for this purpose shall submit an application through the
Exchange along with a net capital certificate and an undertaking confirming
that the broker remains compliant with the requirements provided under rule 11.
(3)
A member whose certificate of registration expires
shall not deal in Commodity Futures Contracts as a broker.
(4)
A member whose application for renewal has been refused
by the commission shall not deal in Commodity Futures Contracts as a broker
from and on the date of receipt of the decision under sub-rule (5) of rule 12.
15.
Suspension
of registration. - Where the Commission is of the opinion that a
broker-
(a) Has
failed to remain in compliance with any conditions subject to which certificate
of registration was granted under these rules;
(b) has
otherwise failed to comply with any requirement of the Act or the
Ordinance or of any rules or directions made or given
thereunder;
(c) has
contravened the rules and regulations of the Exchange;
(d)
has failed to follow any requirement of the code of
conduct as laid down under these rules;
(e) has
failed to comply with the directives of the Commission in respect of business
conduct, dealings with clients and financial prudence;
(f) has
failed to furnish any information related to his transactions in
Commodity Futures Contract as may be required by the
Commission;
(g) has
failed to submit periodical returns as required by the Commission;
(h) has
furnished wrong or false information;
(i)
has failed to settle an investor complaint where such
complaint had been adjudicated by an Exchange or a committee of an Exchange or
the Commission;
(j) has
not co-operated in any enquiry or inspection conducted by the Commission;
(k) has
indulged in manipulating price rigging or cornering activities in an
Exchange;
(l) his
financial position has deteriorated to such an extent that the Commission is of
the opinion that his continuance in the business of dealing in Commodity
Futures Contracts shall not be in the interest of investors; or
(m) has
been suspended by an Exchange,
The Commission may, if it
considers necessary in the public interest so to do, by order in writing:-
(i)
suspend the registration of a broker for such period as
may be specified in the order; or
(ii)
impose on a broker a fine not exceeding one hundred
thousand
rupees:
Provided that the broker shall be
providedan opportunity of being heard before passing order under sub-clause (i)
or sub-clause ( ii ).
16.
Cancellation
of registration. - Where the Commission is of the opinion that (a) the
cause of suspension of registration under rule 15 continues during the period
of such suspension, or (b) a broker whose registration has been suspended-
(i)
is engaged in insider trading, market manipulation or
any other unfair practice or market abuse;
(ii)
has been found guilty of fraud, or convicted of a
criminal offence;
(iii)
has his membership cancelled by an Exchange; or
(iv)
has not complied with a directive of the Commission.
The Commission may, if it
considers necessary for the protection of investors so to do, by order in
writing, cancel the registration of the broker;
Provided that no such order shall
be made except after giving the broker an opportunity of being heard.
17.
Automatic
cancellation of registration.- (1) A certificate of registration granted to
a broker under rule 12 shall stand cancelled automatically if he,-
(a) ceases
to be a Member of an Exchange;
(b) is
declared defaulter by an Exchange and is not re-admitted to
Membership
within a period of six months from such declaration;
(c) surrenders
Membership of an Exchange;
(d) is
declared insolvent by a Court;
(e) voluntarily
surrenders certificate of registration to the Commission; or
(f) is
wound up by an order passed by a Court.
(2)
Where a certificate of registration stands cancelled
under sub-rule (1) , the concerned Exchange or clearing house shall intimate
the Commission immediately about such cancellation.
18.
Broker,
etc., to clear liabilities.- Notwithstanding the refusal, suspension or
cancellation of a certificate of registration under rules 13, 15, 16 or 17, a
broker shall be responsible for clearing all his obligations upto the date on
which he has been working as broker.
19.
General
obligations and responsibilities.- The brokers shall be responsible to keep
and maintain the books of accounts, records and documents as specified in the
Ordinance, the Act, and rules.
20.
Brokers to
abide by code of conduct. - A broker holding a certificate of registration
under these rules shall abide by the following code of conduct as provided in
the Schedule.
21.
System
Audit. - A broker shall undergo an annual system audit in accordance with
the directions issued by the Commission from time from time.
22.
Maintenance
of Books of account, etc by brokers.- (1) Every broker shall prepare and
maintain the following books of account and other documents, in electronic or
manual form, that will disclose a true, accurate and up to date position of the
business namely;
(a) journal
(or other comparable record), cash book and any other books of original entry,
forming the basis of entries into any ledger, the books of original entry being
such as containing daily record of all orders for purchase or sale of Commodity
Futures Contracts, all purchases and sales of Commodity Futures Contracts, all
receipts and deliveries of a commodity and all other debits and credits;
(b) ledgers
(or other comparable records) reflecting asset, liability, reserve, capital,
income and expense accounts;
(c) ledgers
(or other comparable records) reflecting securities in transfer, securities
borrowed and securities loaned and Commodity Futures
Contracts
bought or sold, of which the delivery is delayed;
(d) record
of all balance of all ledger accounts in the form of trial balances to be
prepared at least once at the end of the six months of every year of
account;
(e) record
of transactions with the banks;
(f)
written consent of customers in respect of contracts
entered;
(g) duplicates
or counterfoils of memos of confirmation or contract notes issued to customers.
(2)
The books of accounts and other documents referred to
in sub-rule (1) shall be preserved for a period of not less than five years.
23.
Registration
of Commodity Futures Contract.- (1) Every Commodity Futures Contract shall
be registered with the Commission under these rules to become eligible for
dealing on an Exchange.
(2)
An Exchange shall submit an application for
registration of a standardized
Commodity Futures Contract with
the Commission.
(3)
Upon receipt of an application under sub-rule (2) the
Commission, if it is satisfied after making such inquiry, as it may consider
necessary that the application fulfills the conditions as it may specify in
this behalf, register the standardized Commodity Futures Contract for dealing
on the Exchange.
(4)
If after the registration of the standardized Commodity
Futures Contract the Commission finds the application is deficient in any
material respect or that the Exchange has failed to comply with any prescribed
condition or requirement and/or that the continued registration of the
standardized
Commodity Futures Contract would not be in the public
interest, the Commission may by order either require the Exchange to correct
the deficiency or comply with the prescribed condition or requirement within
the time specified in the order or amend the specification of any standardize
CommodityFuture Contract.
(5)
No application submitted under sub-rule (2) shall be
refused and no registration of standardized Commodity Futures Contract shall be
revoked unless the Exchange has been given the opportunity of being heard.
(6)
The Commission or an Exchange may, if it considers it
to be in the interest of the trade or in the public interest so to do, by order
recording the reasons, suspend for a period not exceeding sixty days, the
trading of any Commodity Futures Contract and may from time to time, for the
said reasons and in the said manner extend the suspension for further period
not exceeding sixty days at any time.
24.
Restriction
on dealings in Commodity Futures Contracts.- (1) No person shall transact
any business in Commodity Futures Contract on any Exchange unless he is a
broker thereof.
(2)
No member shall act as a broker in a Commodity Futures
Contract on an Exchange outside such Exchange.
(3)
Nothing in this rule shall be deemed to prohibit an
Exchange from acting as a central counterparty to trades on the Exchange.
25.
Prohibition
of fraudulent acts, etc._ (1) 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 Commodity Futures
Contracts, directly or indirectly,-
(a) employ
any device, scheme or artifice, or engage in any act, practice or course of
business, which operates or is intended or calculated to operate as a fraud or
deceit upon any person; or
(b) make
any suggestion or statement as a 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 anything which he would not do
or omit if he were not so deceived; or
(e)
do any act or practice or engage in a course of
business, or omit to do any act which operates or would operate as a fraud,
deceit or manipulation upon any person, in particular-
(i)
make any fictitious quotation;
(ii)
create a false and misleading appearance of active
trading in any
Commodity
Futures Contracts; or
(iii) directly
or indirectly effect a series of transactions in any Commodity Futures
Contracts creating the appearance of active trading therein or of raising of price
for the purpose of inducing its purchase by others or depressing its price for
the purpose of inducing its sale by others.
26.
Prohibition
of false statements, etc. - No person shall, in any document, paper,
accounts, information or explanation which he is, by or under these rules,
required to furnish, or in any application made under these rules, make any
statement or give any information which he knows or has reasonable cause to
believe to be false or incorrect in any material particular.
27.
Maintenance
of secrecy. - No person shall, except with the permission of the
Commission, communicate or otherwise disclose to any person not legally
entitled thereto any information which has been entrusted to him or which he
has obtained or to which he had access in the course of the performance of any
functions under these rules.
28.
The
Commission’s power to call for information. - Every Exchange and every
director, officer, members or brokers thereof shall furnish such documents,
information or explanation relating to the affairs of the Exchange, or as the
case may be, relating to the business on the Exchange of such director,
officer, member or broker as the commission may, at any time, require in order
by writing.
29.
The
Commission’s power to give directions.- The Commission may, if it is
satisfied that it is necessary or expedient so to do in the public interest or
in the interest of the capital market, by order in writing, give directions to
the Exchange, any director, officer, member or broker thereof.
30.
Enquiry.-DELETED.
31.
Advisory
Committee.- DELETED
32.
Prohibition
on Exchange Deals.- (1) No person who is employed by an Exchange or who has
been so employed by an Exchange at any time during the preceding six months
shall, directly or indirectly, deal in any Commodity Futures Contract traded on
or cleared by the Exchange of which he or she is or has been at any time during
the preceding six months, an employee.
(2)
No person shall deal on an Exchange in any commodity
underlying Futures Contract or cause any other person to deal in any commodity
underlying Futures Contract, if he or she has information which
(a) is
not generally available ;
(b) Would
if it were so available, be likely to materially affect the price of such
Commodity Futures Contract; or
(c) relates
to any transaction (actual or contemplated) involving such Commodity underlying
Futures Contracts.
(3)
The Commission or the Exchange may, from time to time,
prohibit any person from such dealings in Commodity Futures Contract, which the
Commission or the Exchange determines to be detrimental to the interest of the
investors in general. Such dealings if the Exchange so prohibits shall require
the approval of the Commission.
33.
Liability
for Contravention of rule 32.- (1) Where a person contravenes the provisions
of rule 32, the Commission may, by a notice in writing, ask such person to show
cause for compensating any person who has suffered loss for such contravention
and initiating proceedings against him.
(2)
Where a person to whom a notice has been issued under
sub-rule (1) satisfy the Commission that –
(a) any
dealing on Exchange or communication of any information was not made with the
intent of making any profit or causing a loss to any person or company; or
(b)
the dealing on Exchange or any information was communicated
in good faith in discharge of his or her legal responsibilities the Commission
may withdraw such notice.
(3)
Where the Commission is not satisfied with the
explanation of the person given the response to the show cause notice served
upon him under sub-rule (1), it may direct him or her to pay any other person
who has suffered loss for any contravention under rule 35, compensation which
shall not be less than the amount of loss sustained by any other person as a
result of such dealing or communication of information.
Provided that where the person who has suffered any loss for
any contravention of rule 35 is not determined, the amount of compensation
equivalent to the gain or the loss avoided by such contravention, shall be
payable to the Commission.
(4)
Any compensation payable under this section shall be
recoverable as arrears of land revenue.
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