Back to Rules & Regulations Main Internet Trading Guidelines, 2005
1) Short Title and Scope:
- (1) These Guidelines are called the Internet Trading (2) The scope of the Guidelines extends to all internet trading service providers. The Guidelines shall not apply to proprietary trade networks or private trading networks operated between a Stock or Commodity Exchange and its members. 2) Definitions: - (1) In these Guidelines, unless there is anything repugnant in the subject or context, (a) "Advanced Electronic Signature" has the same meaning as given in section 2(1)(e) of the Electronic Transactions Ordinance, 2002; (b) "broker" means any broker registered with the Commission under . Broker and Agents Registration Rules, 2001 or under the Commodity Exchange and Future Contracts Rules, 2004; (c) "Commission" has the same meaning as given in section 2(2)(g) of the Securities and Exchange Commission of Pakistan Act, 1997; (d) "Commodity Exchange" has the same meaning as given in section 2(l)(cc) of the Securities & Exchange Ordinance, 1969; (e) "Electronic Signature" has the same meaning as given in section 2(l)(n) of the Electronic Transactions Ordinance, 2002; (f) "Internet trading service provider" means any person offering trading service in securities through the internet under these Guidelines; (g) "person" has the same meaning as given in section 2(1 )(j) of the Securities and Exchange Ordinance, 1969; (h) "Securities or Security" has the same meaning as given in section 2(1)(1) of the Securities and Exchange Ordinance, 1969; and (i) "Stock or Commodity Exchange" means: (i) any Stock Exchange defined under section 2(1 )(m) of the Securities and Exchange Ordinance, 1969 (ii) any Commodity Exchange defined under clause 2(l)(cc) of the Securities and Exchange Ordinance, 1969; and (2) All other words and expressions used but not defined in these Guidelines shall have the same meanings as are assigned to them in the Companies Ordinance, 1984 (XLVII of 1984), the Securities and Exchange Ordinance, 1969 (XVII of 1969) and the Securities and Exchange Commission of Pakistan Act, 1997(XLII of 1997). 3) Commencement of Service: - (1) Prior to commencement of service every internet trading service provider shall submit details to the Commission of the service to be provided. (2) Prior to commencement of service every internet trading service provider shall demonstrate its ability to provide the service under these Guidelines. (3) Prior to commencement every internet trading service provider shall have the systems, controls and procedures of the internet trading service audited independently by an audit firm approved by the Commission. (4) All existing internet trading service providers shall comply with these Guidelines within six weeks of the date of issue of these Guidelines. 4) Service Requirements:- Every internet trading service provider shall ensure that satisfactory arrangements are in place to: (1) ensure confidentiality of information in such a way that information is only accessible to an authorized person or system; and in particular that satisfactory measures are in place to prevent: (a) unwanted disclosure of inter alia personal data, transactions, activity and presence on the internet; (b) misappropriation of IDs; (c) impersonation, leading to unauthorised (illegal) transactions; (d) unauthorised usage and inability to detect such malpractices in a timely fashion and/or identify the perpetrator; (e) attacks from third parties designed to interrupt the service or aimed at the service becoming an agent for an attack against another web site; (f) analysis of data by unauthorized third parties. (2) safeguard the integrity of the service including controls to prevent: (a) non-compliance with laws, rules, regulations and Guidelines issued by the Commission, leading to illegal transactions, fraud or malpractice;
(b) presentation of incorrect data, whether unintentionally or malevolently; - (c) false presentation, or the use of incomplete information for transactions; (d) manipulation of data; (e) viruses, leading to inter aha loss of data, unauthorized access to or manipulation of data, unavailability or threat of unavailability of systems; (f) cyber extortion, selling or provision of data stolen from (or illegally obtained from) service providers. (3) ensure the availability of the service in the event that: (a) the site is not reachable, and that there is no possibility to trade, or to get or give information; or (b) that parts of the site are not reachable either through a denial of service attack or lack of capacity; or (c) that the provider of the service is unable to give timely access to the site or parts of the site.
(4) ensure that satisfactory alternative arrangements and contingency plans are in place to ensure that business can continue in the event of a large- scale disruption (Disaster Recovery Planning/Business Continuity Planning); (5) ensure that the identity of the person or system accessing the service is properly verified by the use of PINs, passwords, electronic signatures or such other approved mechanism so as to exclude unauthorized access; (6) ensure that satisfactory arrangements are in place so that a broker can at all times uniquely identify each and every order during the different stages of processing; (7) ensure that orders placed through its systems are fairly allocated in accordance with the rules of the relevant Stock or Commodity Exchange; (8) ensure that there is an effective audit trail to address risks arising from: (a) the opening, modification or closing of a client account; (b) any transaction with significant financial consequences; (c) any authorisation granted lo a customer to exceed a limit;
(d) any granting, modification or revocation of systems access rights or privileges. 5) Service Agreement/Arrangement:- Every internet trading service provider shall : "(a), have an agreement with clients to whom it offers an internet trading service that contains appropriate and prominent risk disclosures highlighting the risks associated with internet transactions; (b) have appropriate arrangements in place to assess a client's suitability to undertake securities transactions via the internet; (e) have appropriate arrangements in place to approve a client's account for day trading; (ifl) have adequate risk management systems for controlling exposure to internet clients and in particular for monitoring margin trading; :(^e) have an adequate number of suitably qualified staff to control and monitor transactions and render clients services in accordance with the rules and Guidelines; (�) either have suitably qualified staff to operate and maintain the systems used for internet trading services or have an irrevocable agreement with a suitably qualified third party service provider for the operation and maintenance of those systems; (g) be responsible for settlement of each and every trade executed through the internet trading service. 6) Requirements by the Exchanges: - A Stock or Commodity Exchange may specify its own requirements, in addition to these Guidelines, for allowing an internet trading service provider to continue its business. 7) Client Identity:- Every internet trading service provider shall submit to the Commission the details as to how it will satisfy itself as to the true identity of a person opening an account and what measures it intends to take to ensure that the account will be maintained and operated by the person opening the account. 8) Security of Data:-. (1) To reduce the risk of third party interception of information sent between a client's computer and the system of an internet trading service provider, every internet trading service provider is required to use some form of encryption.
(a) The encryption shall apply not only to orders being entered but to any communication with clients that contains confidential information. (b) Every internet trading service provider is also required to use a firewall to prevent intrusions by unauthorized persons (e.g., a cracker or hacker, who may obtain unauthorized access to a computer system by bypassing passwords or otherwise breaching computer security). (c) Every internet trading service provider shall ensure that its system shall be configurable to allow auto-logoff in case of inactivity of the trading terminal and the trading website. (d) Every internet trading service provider shall demonstrate that they have in place a written security policy based on or containing these Guidelines as part of their security policy.
9)
Operational Capacity: - Every internet trading service provider shall ensure 10) Systems Modification: - Every internet trading service provider is required to submit to the Commission, in advance, with information relating to any significant changes to its systems or any changes to the functionality of its systems identifying the areas and the reasons for the change. lpPeriodic Audit: - (1) Every internet trading service provider shall ensure that its systems, controls and procedures are audited independently by an audit firm approved by the Commission once every financial year. (2) Every internet trading service provider shall submit report of the audilor to the Commission within four months of the date of the close of its financial year. 12) Customer Information:- (1) Every internet trading service provider shall ensure that its system shall provide the following information in plain English or Urdu language and in an easily accessible form: (a) a basic explanation of securities trading; including definitions of common terms used on the trading screen; (b) a general statement and information regarding the manner in which orders are accepted, processed, settled and cleared via the internet;
(c) disclosure about the risks of securities trading, including the risk of systems outages and failures and any alternative means of placing orders; (d) disclosure about the risks involved in trading securities in a margin account; (e) procedures to cancel pending orders during a system failure; (f) a glossary explaining key investment terms and concepts such as; (i) the differences between the various types of orders that may be placed {e.g., a market order, a limit order); (ii) notice that a market order may be executed at a price higher or lower than the quote displayed on the website at the time of order entry; (iii) an explanation of how the customer's orders are executed; (iv) any situations in which customers may not receive an execution; (v) any restrictions on the types of orders that customers can place; and (vi) how market volatility can affect customers' orders. (g) the rules and Guidelines affecting inter alia client broker relationship, arbitration rules, investor protection rules. (h) a hyperlink to the website/page on the website of the relevant Stock or Commodity Exchange displaying rules/Guidelines/circulars; and (i) a 'Terms of Use" policy document which includes proper and fair disclaimers. (2) Every internet trading service provider shall ensure that its ticker/quote/order book displayed will display the time stamp as well as the source of such information against the given information. 13) Duplicate orders: - Every internet trading service provider is required to ensure that its system has mechanisms to prevent executions of unintended duplicate orders.
14) Independent assessment: - The Commission may employ technical experts to undertake an independent assessment of the operational capacity and security of a system. 15) Order/Trade Confirmation: - (1) Every internet trading service provider shall ensure the trade confirmations and contract notes are sent to the client. Subject to the rules and regulations of the Stock or Commodity Exchange, these may be sent by email on condition that the broker:
(a) notifies the Stock or Commodity Exchange concerned of the intention to use of electronic trade confirmations and/or contract notes one month in advance; and (b) obtains prior written consent from the clients concerned. (2) Every internet trading service provider shall ensure that any trade confirmations and/or contract notes sent by email shall be digitally signed by Electronic Signature or Advanced Electronic Signature. 16) Outsourcing: - (1) Every internet trading service provider considering entering into outsourcing arrangements with a third party supplier of internet trading services shall ensure that they cannot contract out of their core functions and regulatory obligations. (2) Every internet trading service provider when negotiating an outsourcing arrangement may, inter alia, consider the following: (a) notification and reporting requirements; (b) intellectual property and information ownership rights, confidentiality agreements and Chinese Walls; (c) the need for, and adequacy of, any guarantees or indemnities; (d) compliance with the internet trading service provider's own policies, for example on information security; (e) arrangements to ensure business continuity and the extent to which facilities that provide the outsourcing are or are not available to provide business continuity for third parties; (f) approval process for changes to outsourcing arrangements; and (g). agreed conditions for terminating outsourcing arrangements.
(3) Every internet trading service provider entering into outsourcing arrangements with a supplier of internet trading services shall enter into a service level agreement that includes: (h) qualitative and quantitative performance targets; (i) evaluation of performance, for example by third parties, internal audits, self certification; and (j) remedial action and escalation processes for dealing with inadequate performance. (4) Every internet trading service provider that enters into an outsourcing arrangement with a supplier of internet trading services shall have appropriate contingency arrangements in place in the event that the supplier of the service is unable to continue to provide a service. 17) Monthly reporting: - Every internet trading service provider shall provide monthly reports to the Commission on the reliability of the service. These reports must show: (a) number of users of the system as at the end of the month: (i) for Stock or Commodity Exchanges this is number of brokers; (ii) for brokers this is the number of clients. (b) daily average number of transactions (of all types) processed by the system during the month and the highest number of transactions processed by the system on a single day during the month; (c) percentage of the scheduled time for availability for which the service was not available; and ' (d) reason for non-availability.
18) Dispute Resolution: - In case of any dispute arising between Broker and Broker, and Broker and Client, the matter will be resolved in accordance with the existing procedures of arbitration and dispute resolution of the Stock or Commodity Exchange. 19) Cooperation with Commission:- (1) To assist the Commission in investigating instances of suspected market abuses such as insider trading and market manipulation, internet trading service providers shall provide full and prompt responses to all requests for information by the Commission.
(2) Every internet trading service provider shall ensure that information displayed on its website is kept in an accessible form for a minimum of twelve months. Guidance Notes
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