BMA Fined for "Front-Running"

In an article from the The Express Tribune, they write that there were documents posted on the Securities and Exchange Commission of Pakistan (SECP) website on Feb. 19th., 2013, that BMA Capital bought 578,000 shares of Bata Pakistan at Rs920 per share from National Bank of Pakistan on August 24, 2012 in a negotiated, off-market block transaction and then on August 29 sold 587,500 shares in another negotiated, off-market transaction at Rs1,000 per share to Bafin BV, the holding company for many of Bata’s global subsidiaries.

The definition of Front-running is when a brokerage firm, after learning of a client’s order to buy shares, first buys shares on their own account and then – after the share price has gone up – buys shares on behalf of the client, giving their client a worse price than they could have gotten had the broker simply executed the trade immediately.

The key question that the SECP tried to answer was when exactly BMA got the order to buy the shares. At a hearing held at the SECP offices in Karachi on November 12, CEO Moazzam Malik and a lawyer representing the firm presented a letter sent by Bafin, stating that they placed their order on August 27.

That e-mail would appear to put BMA in the clear: they bought Bata Pakistan shares before Bafin placed an order to buy them. BMA’s lawyers have insisted that the firm was engaged in proprietary trading when it bought the shares from NBP and also when it sold them to Bafin, and did not act as a broker in either trade.

But when the SECP followed up, they found out a more: “We have been discussing with BMA for quite some time [fusion_builder_container hundred_percent="yes" overflow="visible"][fusion_builder_row][fusion_builder_column type="1_1" background_position="left top" background_color="" border_size="" border_color="" border_style="solid" spacing="yes" background_image="" background_repeat="no-repeat" padding="" margin_top="0px" margin_bottom="0px" class="" id="" animation_type="" animation_speed="0.3" animation_direction="left" hide_on_mobile="no" center_content="no" min_height="none"][the] opportunity for acquiring shares. However, it was only around August 27, if I recall correctly, that a firm opportunity arose for Bafin to acquire some shares,” from December 4 in an e-mail response to the SECP’s inquiries.

That is the dispute. Technically, BMA bought Bata shares before Bafin placed its order. However, as the second e-mail suggests, BMA clearly knew that a large order for Bata shares was coming from Bafin. The SECP contends that, as a registered brokerage house, it was BMA’s responsibility to act only as an intermediary between NBP and Bafin, collecting only a commission.

Consequently, BMA managed to earn a Rs46 million profit from the trade by first buying the shares from NBP for its own proprietary account and then selling them to Bafin for a higher price. That profit would be more than wiped away by the Rs50 million fine levied on BMA by the SECP.

BMA denies all wrongdoing. “We have always acted in accordance with the law,” Moazzam Malik told The Express Tribune. “BMA firmly believes that it has not violated any law or code of conduct set forth in the Brokers Rules and has decided to appeal the decision passed by the SECP,” Malik further said.

If you have experienced a financial loss, call Soreide Law Group for a free consultation with an attorney at: 888-760-6552.[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]