The national stock market regulator has failed to take decisive action against a heavyweight stockbroker for suspected insider trading even after eight months after the alleged trade.
Earlier this year, the Pakistan Stock Exchange (PSX) Limited sent a report to the regulator, the Securities Exchange Commission of Pakistan (SECP), over initial findings of potential insider trading over shares of BankIslami Pakistan Limited (BIPL). The report, relevant portions of which have been seen by The Friday Times, points to trading data from November 2022.
The report assessed trading in the market where JS Bank -- a subsidiary of Jahangir Siddiqui & Co. Ltd. (JSCL) and whose other subsidiaries include JS Global Capital Ltd and JS Investment Ltd - sought to acquire a controlling stake (51%) in BIPL. JS Bank hoped to exploit some loopholes to become the only bank in Pakistan to own and operate two separate banks, even as it explained the acquisition as its foray into Islamic Banking by simply acquiring an Islamic bank.
However, a PSX inquiry allegedly found that in the days leading up to BIPL's public disclosure that JS Bank was interested in acquiring a controlling stake in the bank, AKD Securities Limited (AKDSL) had bought a significant number of shares in BIPL from the market ratcheting up share prices by as much as Rs3 per share before the disclosure was made.
Once JS Bank disclosed on November 17 about JSCL's intentions to buy BIPL, the the bank's stock prices shot up. At this point, AKDSL sold its shares of BIPL and allegedly made "hefty" gains allegedly to possession of the non-public information it had.
When the PSX asked AKDSL about the trades, the market regulator said it was not provided with any substantial reason for engaging in them, raising suspicion that all such trades were carried out based on non-public material information.
Even though the PSX communicated these findings to the SECP, the regulator has failed to take any action against AKDSL for the unusual trades. The SECP has not even launched an investigation against AKDSL and into its alleged criminal activities under section 128(1) of the SECP Act 2015.
Gains
Based on PSX data, BIPL shares were trading at Rs10.95 at the end of October.
However, its share prices started to rise in the days leading up to November 17. But the more unusual factor was the volume of shares traded.
From a few hundred thousand shares traded per day in the prior month, the volume of shares traded per day rose to nearly a million on November 2, 2022.
As AKDSL allegedly kept buying shares of BIPL, the bank's share prices continued to rise, climbing to Rs11.11 by November 7 with 368,500 shares traded (a spike in volume of shares traded from November 8 - 10 in BIPL shares could be attributed to the government's announcement not to contest Federal Shariat Court's verdict to implement Islamic banking in the country).
After that, not only did its share prices keep rising, but at least a million shares were traded on each trading day until JS Bank's disclosure on November 17, when some 17 million shares were traded as its share price peaked at Rs13.92, so much so that BIPL was the market leader by volume on November 17.
From then until November 23, BIPL's share prices rose to Rs15.47, a value it would not regain until May 3, 2023.
AKD & attempts to block BIPL sale
Months after AKDSL is said to have allegedly used non-public information to make trades that not only inflated the share price of BIPL before the announcement by JS Bank, AKDSL was involved in a move that ultimately impacted the bank's share prices.
On March 8, 2023, the Sindh High Court (SHC) issued an interim order that restrained JS Bank and JSCL from acquiring a majority stake (with management control) in BIPL on the submission that one group cannot acquire and operate two commercial banks at a time.
The bourse filing said the submission was made by Muhammad Ayub Tareen, Mohsin Balagamwala, Asif Mannan and AKD Investment Management Limited. The case was dismissed last month, and JS Bank has been allowed to proceed with the transaction.
AKD Investment Management Limited (AKDIML) is a subsidiary of AKD Securities (Private) Limited.
Aqeel Karim Dhedhi essentially owns AKDIML and AKD SL. He or members of the Dhedhi family occupy key positions across a spectrum of companies involved in venture capital, real estate, oil and gas, among its securities and investment portfolios.
Moreover, according to the website of AKDSL, one of its directors, Afsheen Aqeel, also serves on the board of BIPL Securities Limited. BIPL Securities Limited is a subsidiary of BIPL.
Dhedhi is a prominent businessman operating in the securities brokerage and investment banking sectors. He is known to use his influence in political circles.
Among his major rivals in the brokerage space is Jahangir Siddiqui, who owns JSCL and JS Bank.
Dhedhi and power of influence
It was said that he had recently attempted to broker peace between Pakistan Tehreek-e-Insaf (PTI) Chairman Imran Khan and the establishment. However, this move did not sit well with the powerbrokers. Dhehdi has since been attempting to reconcile, but unlike its previous leadership, the current establishment is treating him differently.
But it seems he still enjoys influence elsewhere. Sources in the PSX claim that the regulator, SECP, is being soft on Dhedhi because of the influence he exerts.
Jahangir Siddiqui opts to use new law
Jahangir Siddiqui and JS Bank had Bank Islami on their radar for a while. In fact, before announcing the deal, Siddiqui and JS Bank already had a significant shareholding in the Islamic financial institution.
Hence, they found it easier to buy out shares from other significant shareholder first rather than go to the market to buy up the requisite number of shares.
When expressing an interest in buying BIPL, Jahangir Siddiqui and Co Ltd (the holding company of JS Bank) was the single largest shareholder in the bank with 21.3% of shares. In comparison, JS Bank too held around 7.8% of shares.
The Randeree family, who had set up BIPL in Pakistan, owned 19.5% of the shares.
JS Bank secured deals to acquire shares owned by Jahangir Siddiqui and Co Ltd and the Randeree family, bringing its shareholding to 48.6%. This was just shy of a controlling stake of 51%.
JS Bank then pursued Sumya Developers to acquire their 1.7% shares of BankIslami. This way, it could amass ownership of more than 50% of shares in BIPL rather than depend on the market.
However, new SECP regulations stipulate that in such a scenario where a takeover is tied up between majority shareholders, the acquirer must purchase 50% of the remaining public stock with minority shareholders.
In this regard, JS Bank and BIPL, on March 6, 2023, announced to purchase 24.88% of the remaining 49% shares in the market.
The new regulations, introduced in September 2022, meant that instead of offering cash against these shares, JS Bank could instead offer payment-in-kind in the form of shares.
"That 470,603,772 shares of BIPL to be acquired from the sponsors and other shareholders of BIPL (including but not limited to, Jahangir Siddiqui & Co Limited, the holding company of the Bank) through agreements be acquired against the issuance of 532,629,349 new shares of the Bank to be issued to them by way of other than rights and other than cash (i.e. 1.1318 ordinary shares of the Bank to be issued as consideration for every share of BIPL to be acquired by the Bank through agreements) in accordance with the valuation carried out by the independent valuer;" stated the March 6, 2023, material disclosure.
In this regard, JSCL decided to offer shares in some of its other companies. "The public offer shall be made in exchange for (as consideration) a maximum of 59.56% shares of JS Investments Limited ('JSIL') and a maximum of 67.90% ordinary shares of JS Global Capital Limited ('JS Global") (in combination) currently held by the Bank as required and permissible under the Regulations."
This only aggravated its fight with some 'aggrieved' minority shareholders who had bought BIPL shares in anticipation that any deal would result in a windfall once it clears all regulatory hurdles. But those plans were impacted when JS Bank offered shares of some of its subsidiaries in exchange.
Though the matter now appears to be near resolution after JS Bank offered cash to BIPL's minority shareholders later in June, offering to acquire 275.9 million shares of BIPL, constituting 24.9% shareholding of the Islamic lender at Rs23.99 apiece.
A recent report claimed that some irregularities were also observed in the share prices of some companies held by JSCL before the share offering. Still, there was no word from the SECP or the PSX on whether these were investigated.
SECP tight-lipped on Dhedhi investigation
When the SECP chairman and On-site Inspection Department head were approached for comment on the progress made in investigations against Dhedhi, the regulator, through its official spokesperson, stated that it was not at liberty to divulge information regarding investigations owing to confidentiality.
However, the SECP did not deny that a complaint had been filed against the dealings of AKDSL by PSX.
Per the law, an investigation is the only available tool for collecting evidence to establish any offence committed. But to allegedly protect the brokerage house, they appear to seek a scenario where they can establish an offence before initiating a formal inquiry into the matter.
No response was received from AKDSL despite repeated attempts made to contact them.
What action can AKD face?
According to Section 128(1) of the SECP Act 2015, insider trading is defined as any insider transacting any deal, directly or indirectly, using inside information involving listed securities to which the inside information pertains or using others to transact such deals. It also includes any other person to whom inside information has been passed or disclosed by an insider person transacting any deal, directly or indirectly, using inside information involving listed securities to which the inside information pertains or using others to transact such deals. Further it includes transaction by any person who knows or ought to have known under normal and reasonable circumstances, that the information possessed and used for transacting any deal is inside information; or an insider person passing on inside information to any other person, or suggesting or recommending to another person to engage in or dealing in such listed securities with or without the inside information being disclosed to the person who has dealt in such securities.
Inside information means any information which has not been made public, relating, directly or indirectly, to one or more issuers of listed securities or to one or more listed securities and which, if it were made public, would be likely to have an effect on the prices of those listed securities or on the price of related listed securities. In relation to derivatives on commodities, information which has not been made public, relating, directly or indirectly, to one or more such derivatives and which are traded in accordance with accepted market practices on those markets; with respect to people responsible for the execution of orders concerning listed securities, information which is conveyed by a client to such person and related to the client’s pending orders; or information regarding decision or intentions of a person to transact any trade in listed securities.
Experts who work on securities said that cases of insider information are extremely difficult to prove in court as the material evidence required to prove that information was passed on for specific purpose of insider trading.
However, if proved, it could incur heavy penalties on those found guilty.
Earlier this year, the Pakistan Stock Exchange (PSX) Limited sent a report to the regulator, the Securities Exchange Commission of Pakistan (SECP), over initial findings of potential insider trading over shares of BankIslami Pakistan Limited (BIPL). The report, relevant portions of which have been seen by The Friday Times, points to trading data from November 2022.
The report assessed trading in the market where JS Bank -- a subsidiary of Jahangir Siddiqui & Co. Ltd. (JSCL) and whose other subsidiaries include JS Global Capital Ltd and JS Investment Ltd - sought to acquire a controlling stake (51%) in BIPL. JS Bank hoped to exploit some loopholes to become the only bank in Pakistan to own and operate two separate banks, even as it explained the acquisition as its foray into Islamic Banking by simply acquiring an Islamic bank.
However, a PSX inquiry allegedly found that in the days leading up to BIPL's public disclosure that JS Bank was interested in acquiring a controlling stake in the bank, AKD Securities Limited (AKDSL) had bought a significant number of shares in BIPL from the market ratcheting up share prices by as much as Rs3 per share before the disclosure was made.
Once JS Bank disclosed on November 17 about JSCL's intentions to buy BIPL, the the bank's stock prices shot up. At this point, AKDSL sold its shares of BIPL and allegedly made "hefty" gains allegedly to possession of the non-public information it had.
When the PSX asked AKDSL about the trades, the market regulator said it was not provided with any substantial reason for engaging in them, raising suspicion that all such trades were carried out based on non-public material information.
Even though the PSX communicated these findings to the SECP, the regulator has failed to take any action against AKDSL for the unusual trades. The SECP has not even launched an investigation against AKDSL and into its alleged criminal activities under section 128(1) of the SECP Act 2015.
Gains
Based on PSX data, BIPL shares were trading at Rs10.95 at the end of October.
However, its share prices started to rise in the days leading up to November 17. But the more unusual factor was the volume of shares traded.
From a few hundred thousand shares traded per day in the prior month, the volume of shares traded per day rose to nearly a million on November 2, 2022.
As AKDSL allegedly kept buying shares of BIPL, the bank's share prices continued to rise, climbing to Rs11.11 by November 7 with 368,500 shares traded (a spike in volume of shares traded from November 8 - 10 in BIPL shares could be attributed to the government's announcement not to contest Federal Shariat Court's verdict to implement Islamic banking in the country).
After that, not only did its share prices keep rising, but at least a million shares were traded on each trading day until JS Bank's disclosure on November 17, when some 17 million shares were traded as its share price peaked at Rs13.92, so much so that BIPL was the market leader by volume on November 17.
From then until November 23, BIPL's share prices rose to Rs15.47, a value it would not regain until May 3, 2023.
AKD & attempts to block BIPL sale
Months after AKDSL is said to have allegedly used non-public information to make trades that not only inflated the share price of BIPL before the announcement by JS Bank, AKDSL was involved in a move that ultimately impacted the bank's share prices.
On March 8, 2023, the Sindh High Court (SHC) issued an interim order that restrained JS Bank and JSCL from acquiring a majority stake (with management control) in BIPL on the submission that one group cannot acquire and operate two commercial banks at a time.
The bourse filing said the submission was made by Muhammad Ayub Tareen, Mohsin Balagamwala, Asif Mannan and AKD Investment Management Limited. The case was dismissed last month, and JS Bank has been allowed to proceed with the transaction.
AKD Investment Management Limited (AKDIML) is a subsidiary of AKD Securities (Private) Limited.
Aqeel Karim Dhedhi essentially owns AKDIML and AKD SL. He or members of the Dhedhi family occupy key positions across a spectrum of companies involved in venture capital, real estate, oil and gas, among its securities and investment portfolios.
Moreover, according to the website of AKDSL, one of its directors, Afsheen Aqeel, also serves on the board of BIPL Securities Limited. BIPL Securities Limited is a subsidiary of BIPL.
Dhedhi is a prominent businessman operating in the securities brokerage and investment banking sectors. He is known to use his influence in political circles.
Among his major rivals in the brokerage space is Jahangir Siddiqui, who owns JSCL and JS Bank.
Dhedhi and power of influence
It was said that he had recently attempted to broker peace between Pakistan Tehreek-e-Insaf (PTI) Chairman Imran Khan and the establishment. However, this move did not sit well with the powerbrokers. Dhehdi has since been attempting to reconcile, but unlike its previous leadership, the current establishment is treating him differently.
But it seems he still enjoys influence elsewhere. Sources in the PSX claim that the regulator, SECP, is being soft on Dhedhi because of the influence he exerts.
Jahangir Siddiqui opts to use new law
Jahangir Siddiqui and JS Bank had Bank Islami on their radar for a while. In fact, before announcing the deal, Siddiqui and JS Bank already had a significant shareholding in the Islamic financial institution.
Hence, they found it easier to buy out shares from other significant shareholder first rather than go to the market to buy up the requisite number of shares.
When expressing an interest in buying BIPL, Jahangir Siddiqui and Co Ltd (the holding company of JS Bank) was the single largest shareholder in the bank with 21.3% of shares. In comparison, JS Bank too held around 7.8% of shares.
The Randeree family, who had set up BIPL in Pakistan, owned 19.5% of the shares.
JS Bank secured deals to acquire shares owned by Jahangir Siddiqui and Co Ltd and the Randeree family, bringing its shareholding to 48.6%. This was just shy of a controlling stake of 51%.
JS Bank then pursued Sumya Developers to acquire their 1.7% shares of BankIslami. This way, it could amass ownership of more than 50% of shares in BIPL rather than depend on the market.
However, new SECP regulations stipulate that in such a scenario where a takeover is tied up between majority shareholders, the acquirer must purchase 50% of the remaining public stock with minority shareholders.
In this regard, JS Bank and BIPL, on March 6, 2023, announced to purchase 24.88% of the remaining 49% shares in the market.
The new regulations, introduced in September 2022, meant that instead of offering cash against these shares, JS Bank could instead offer payment-in-kind in the form of shares.
"That 470,603,772 shares of BIPL to be acquired from the sponsors and other shareholders of BIPL (including but not limited to, Jahangir Siddiqui & Co Limited, the holding company of the Bank) through agreements be acquired against the issuance of 532,629,349 new shares of the Bank to be issued to them by way of other than rights and other than cash (i.e. 1.1318 ordinary shares of the Bank to be issued as consideration for every share of BIPL to be acquired by the Bank through agreements) in accordance with the valuation carried out by the independent valuer;" stated the March 6, 2023, material disclosure.
In this regard, JSCL decided to offer shares in some of its other companies. "The public offer shall be made in exchange for (as consideration) a maximum of 59.56% shares of JS Investments Limited ('JSIL') and a maximum of 67.90% ordinary shares of JS Global Capital Limited ('JS Global") (in combination) currently held by the Bank as required and permissible under the Regulations."
This only aggravated its fight with some 'aggrieved' minority shareholders who had bought BIPL shares in anticipation that any deal would result in a windfall once it clears all regulatory hurdles. But those plans were impacted when JS Bank offered shares of some of its subsidiaries in exchange.
Though the matter now appears to be near resolution after JS Bank offered cash to BIPL's minority shareholders later in June, offering to acquire 275.9 million shares of BIPL, constituting 24.9% shareholding of the Islamic lender at Rs23.99 apiece.
A recent report claimed that some irregularities were also observed in the share prices of some companies held by JSCL before the share offering. Still, there was no word from the SECP or the PSX on whether these were investigated.
SECP tight-lipped on Dhedhi investigation
When the SECP chairman and On-site Inspection Department head were approached for comment on the progress made in investigations against Dhedhi, the regulator, through its official spokesperson, stated that it was not at liberty to divulge information regarding investigations owing to confidentiality.
However, the SECP did not deny that a complaint had been filed against the dealings of AKDSL by PSX.
Per the law, an investigation is the only available tool for collecting evidence to establish any offence committed. But to allegedly protect the brokerage house, they appear to seek a scenario where they can establish an offence before initiating a formal inquiry into the matter.
No response was received from AKDSL despite repeated attempts made to contact them.
What action can AKD face?
According to Section 128(1) of the SECP Act 2015, insider trading is defined as any insider transacting any deal, directly or indirectly, using inside information involving listed securities to which the inside information pertains or using others to transact such deals. It also includes any other person to whom inside information has been passed or disclosed by an insider person transacting any deal, directly or indirectly, using inside information involving listed securities to which the inside information pertains or using others to transact such deals. Further it includes transaction by any person who knows or ought to have known under normal and reasonable circumstances, that the information possessed and used for transacting any deal is inside information; or an insider person passing on inside information to any other person, or suggesting or recommending to another person to engage in or dealing in such listed securities with or without the inside information being disclosed to the person who has dealt in such securities.
Inside information means any information which has not been made public, relating, directly or indirectly, to one or more issuers of listed securities or to one or more listed securities and which, if it were made public, would be likely to have an effect on the prices of those listed securities or on the price of related listed securities. In relation to derivatives on commodities, information which has not been made public, relating, directly or indirectly, to one or more such derivatives and which are traded in accordance with accepted market practices on those markets; with respect to people responsible for the execution of orders concerning listed securities, information which is conveyed by a client to such person and related to the client’s pending orders; or information regarding decision or intentions of a person to transact any trade in listed securities.
Experts who work on securities said that cases of insider information are extremely difficult to prove in court as the material evidence required to prove that information was passed on for specific purpose of insider trading.
However, if proved, it could incur heavy penalties on those found guilty.