The suspension of numerous stock exchange dealers due to manipulations has contributed to increased fears among some traders
Many stock exchange dealers have chosen institutional investment channels over self-managing portfolios to avoid risks and potential mistakes with negative consequences
Despite a growing number of investment portfolios since the year’s start, the percentage of suspended portfolios on Boursa Kuwait has surged to 37%, contrasting with the 63% classified as active.
Informed sources disclosed to Al-Jarida newspaper that the tally of suspended investment portfolios has reached 1,619 out of the total count of 4,339 ‘active’ portfolios, constituting 37 percent.
The sources attributed the suspension of these portfolios to either a personal decision by the portfolio manager, decisions issued by the disciplinary board concerning the owner or manager of the portfolio, or monitoring of violations by the Capital Markets Authority.
She stated that the suspension of numerous stock exchange dealers due to manipulations has contributed to increased fears among some traders. This has led many of them to opt for investing through institutional channels rather than taking any risks or making mistakes that could result in negative consequences by managing the investment portfolio themselves. As a result, they are assigning their portfolios to investment companies for management instead.
She revealed that some investment companies managing portfolios have violated the law, committing numerous infractions related to the management of investment portfolios. These include the unauthorized transfer of cash from the bank accounts of portfolio clients to the company’s account without providing any document substantiating their entitlement to those funds.
Additionally, the company failed to follow the prescribed procedures in the documentary cycle to complete tasks related to the investment portfolio manager’s activities. This lapse occurred because the documentary cycle did not include procedures for transferring clients’ funds to external parties to fulfill obligations arising from their dealings in securities.
She further noted that there are companies that have investment portfolios for a number of clients without including all the relevant information related to them in the report sent by the company to the authority regarding the investment portfolios established with them.
Consequently, the report falsely indicates that there are no portfolio clients. Additionally, these companies fail to register their employees with the Authority or carry out their registered function (as representatives of the activity of the investment portfolio manager) when they receive customers’ orders to buy and sell securities and engage in transactions on their own accounts.
She said that the company failed to reconcile the records and accounts of customers with the company. This is evident as the total amounts in the bank accounts of customers and those in the accounts of external parties for the execution of customer orders (financial brokerage firms) exceed the amounts in the company’s internal records. Additionally, the company neglected to address the discrepancies found in the balance matching operations.
She stressed that there are irregularities related to the failure to clarify some of the commissions charged by the company for managing the investment portfolios of the customers themselves.
She noted that the calculation of fees and commissions due to the licensed person for the services provided is subject to certain controls in investment portfolios.
These controls include not imposing fees for opening the investment portfolio, ensuring that fees and commissions for portfolio services are reasonable and not exaggerated, and that they align with the nature of the services provided to the customer. Additionally, customers should be introduced to the mechanism for calculating fees and commissions for services, including incentive fees, as well as how these fees and commissions are settled.
The sources pointed out that the periodic investment portfolio reports that those in charge of managing portfolios should submit periodically to the Capital Markets Authority include a report on the portfolios that have been created or closed, a report on the portfolios of the licensed person, a report on the portfolio clients’ trading on securities issued by the licensed person, the parent company, or subsidiaries and associates, and a report on the trading of employees and members of the licensed person’s board of directors.
Additionally, there should be a report on the transactions of portfolio clients, foreigners, and another report dealing with the names of the authority based on managing portfolios in all its forms for customers and the company’s portfolios. Furthermore, they must provide the authority with any changes that occur to the existing body authorized to manage portfolios.
It is noteworthy that the automated system for reports required from investment portfolio managers through the electronic portal of the Capital Markets Authority has contributed to completing the documentary cycle and tightening control over operations of investment portfolios in the capital market.