Ex-SECP chairman Muhammad Ali was an alumnus of IBA Karachi, and has been a known figure in the capital markets of our country. PHOTO: FILE
Pakistan has largely become a place where maintaining status quo allows a select group of people to enjoy the perks and privileges of the state. While on one hand, we demand that there be “change” in the way things run, yet the very talk of change is shot down by the protectors and protagonists of the status quo.
Our nation has been led largely by the civil and military bureaucracy since inception, for which status quo suits the most. In developing nations, political forces are required to formulate policies, but in Pakistan, the very thought of policy formulation by politicians is shot down in its ascent.
The Securities and Exchange Commission of Pakistan (SECP) is the regulator of the corporate sector under which four broad categories of regulatory activities fall – corporatisation of the economy, securities market, non-banking financial sector and insurance sector. The SECP chairman is a position of importance and is appointed by the federal government for a period of three years. Not just being the apex regulator, the SECP chairman is, in essence, the chief marketing officer of the corporate sector.
Chairman Muhammad Ali was appointed in December 2010. Ali, an alumnus of IBA Karachi, has been a known figure in the capital markets of our country and will be known as a successful entrepreneur. He not only established successful brokerage companies, but also renowned IT companies in the mid to late 1990s.
Belonging to the new generation of tech-savvy stock brokers, Ali was an early proponent of using information technologies in the capital markets, possibly because of which the KSE has been at the forefront of change.
Hearing a petition against Ali’s appointment filed by an ex-employee of the SECP, a two-member bench of the Supreme Court has declared the chairman’s appointment void.
The petitioner, who had been removed from SECP in 2011, has not been reinstated however. If one needs to understand why status quo must prevail, then the performance of the SECP for the last two odd years needs to be scrutinised.
The key matters that had been left outstanding for years like the capital gains tax on securities business and demutualisation of the stock exchanges were resolved during these two years. The capital markets have again become active with not just improvement in volumes, but also attracting capital flows into the country. While the country has failed to attract FDI during the last five years, Foreign Portfolio Investments remain the only highlight on the investment front.
On the enforcement front, of late the SECP had become active and fined a leading brokerage house and a fund management company for front running.
A day before the petition was to be adjudicated upon, a damaging news report appeared in The News (Thursday, April 11, 2013) claiming that the SECP chairman had business interests with other brokers and hence was in conflict of interest with the position held. Muhammad Ali did respond that he had sold his shareholding in the said business in 2006 and had documentary evidence to prove the same.
The news report was placed at the most appropriate time considering the upcoming hearing and impending judgment. Terms used in the report like “nepotism”, “abuse of authority” and “massive tax evasion” must have been enough for the judges to notice. Does this judgment not cement apprehensions of the legal fraternity that media is trying to influence judicial decisions?
While Ali may choose to appeal against the decision or not, who will be at the losing end but the corporate sector, in general, and capital markets, in particular! With the stock market at an all-time high and expectations for it to reach even higher fuelled by the timely elections and a smooth transition to a new setup, judicial steps like these leave a sour taste for investors.
With less than nine months left in his term, the SECP chairman should have been allowed to complete his agenda and leave a legacy for his successor to follow and improve. When financial embezzlement, fake degrees and dual nationalities could not be proved, conflict of interest, a very subjective charge, has been used to remove an efficient and effective marketer of Pakistani corporate sector.
The writer is a UAE-based investment banker who can be contacted at ali.wahab@tribune.com.pk
Published in The Express Tribune, April 29th, 2013.
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COMMENTS (33)
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What's creepy about these comments is that 'Muhammad ali', 'akeel' and 'rule of law" are commenting against the chairman....hehehe.
@Muhammad Ali: dude you are obviously quite swept up with the theory of 'capture' which FYI is rooted in the debate to not have regulators. Its strange that OGRA, NEPRA, PTA, SECP, FBR are all meeting the same fate.
I just wonder why the rest of the world isnt subscirbing to this view, and why regulators continue to exist. Who should head them is a mindless debate, especially considering that you have a choice from only three segments - bureaucracy, military, private individuals. In the third you have two choices - experienced people or lay persons.
Anyway, like I said earlier, utopian ideals - they are killing this country.
@Asad Ali. Well nobody is talking of isolating or shutting down of the Regulator. Stakeholder driven regulation is also fine, but what matters is who do you consider as the stakeholders, and what is the object of regulation. For that you need to go back to the theory behind privatization of industry and services. The playing field between industry and consumers is not level by any means, and that is the reason why you create independant Regulators to bring some semblance and equity to the relationship. Otherwise, human greed and unreasonable competitive behaviours (i.e. pure capitalistic driving forces) lead to everybody's loss as is clear from the International Financial Crisis and our own recurrent market crashes. If we're going to hand over the 'independant' regulation to the same industry, then lets at least not kid ourselves by calling it independant. Let's just call it 'self regulation'. Otherwise those who are being fooled by telling them that their rights are being protected by the 'independant' regulators are going to assume that they have been captured by the industry.
@Muhammad Ali: sure, thats one theory. But to blame a market crash on the regulator being too close to the market is like closing your eye to an overall picture because its easier to fix the blame on one specific cause. If that was the real and only reason, then why is it that Internationally, Regulators of the financial sector especially, are big on "stakeholder driven" regulation. Its because regulations are made for the market they regulate. Laws are made for the people they govern. You cant expect legislative and enforcement bodies to work in isolation from their stakeholders, thats an impractical utopia. What is needed in adequate checks to make sure that the stakeholder interaction remains checked, not shut down.
@ Amin Ahmed. Do some reading on the causes of the International Financial Crisis of 2008 and the Occupy Wall Street movement. It will tell you that experts from the Wall Street Banks like Goldman Sachs & Morgan Stanely sitting as Federal Regulators in US & Europe failed to do their duty to protect the investors and the national economies because they were too close and tuned to the thinking of the market rather than that of independent regulators.
Indeed, it makes little sense for the Apexe regulator, theSECP itself, to be made up of the very same people it is meant to regulate. Brokers should realise that the greater good and their own best interests will be served much better if they focus more on giving investors better market access and serving investor needs rather than involving themselves in issues best left to an independent management and an independent regulator.
Ali was a bad regulator. 1) He made Takaful rule 2012 with were against Sharia principles and are now in court 2) There are more de-listings then listings on the KSE. Only black money being allowed has made the market go up 3) The NBFC sector he regulates in non-functional. Only one leasing company operates out of a peak of 31 4) No new leasing/investment banking or insurance companies have come up during his tenure 5) He is more interested in protecting the interest of one broker than the markets 6) Savings rates are at record lows and only mutual fund companies owned by banks are allowed. 7) The TFC market has been destroyed.
Every sector that falls under the SEC under Ali's tenure has become worse not better!!!
@Amin Ahmed Your inconclusive argument proves that you have not bothered to read all the comments and the Links shared by Muhammad Ali and Hammad. The problem with self-serving pseudo-intellectuals is that they consider themselves as absolutely right, even if the evidence proves otherwise!
@Rule of Law: Why is it that if one questions the mindless judgments of our courts, defenders using pseudonyms like "Rule of Law" come to the defence!
As far as stock market touching an all time high is concerned, it is for the believers and not the ones who live in denial!
While the fake degree holders and dual citizens actively completed their terms, the sole marketer of the corporate sector faces trial
Nobody poured in the FDI, so he made sure we did not lose on FPI. Proud of you sir.
Price you pay for being an honest Pakistani.
To the least they should have acknowledged under his leadership we saw stock exchange touch an all time high, that also in such difficult times of Pakistan.
Just when I thought I should be reinvesting, they gave me reason not to.
Another sad day for Pakistan economy.
The only thing new in this is the fact that the man did substantiate things for the economy. I guess the corrupt earn a bonus on screwing those with a more constructive background.
He should have swept away those employees for good. He didn't and remained focused on making things better for the economy. Seems right for the honest because this is how it has been.
This is what one gets for staying firm and honest in times your rescue is required.
This is a huge loss. Another sad day for the Pakistani economy.
@Muhammad Ali: If you dont get a person from corporate sector of which capital markets are a part, where do you get people from? Happy with imports from New York, Washington or Manila? Or a philanthropic organization like Saylani Welfare Trust? Would it have helped that SECP Chairman was from a city other than Karachi?
@Blunt: Wish the SBP / Government had bailed out markets like the US Federal Reserve did. QE, QE2, QE3, do they ring a bell?
Read the report that he exerted pressure to save the skins of those involved in the OGRA scandal, in this very edition of ET. So what is correct? Is he a dishonest individual or is he an honest professional ?
Being genius as a broker or a businessman is not all that is required to be SECP Chairman. Today's story by Express Tribune shows how honest and independent the Ex-Chairman SECP was. The SECP officer who unearthed the suspicious transactions by the big Brokers in SNGPL & SSGCL shares linked with Tauqir Sadiq case is facing disciplinary proceedings started by Ex-Chairman SECP.
http://tribune.com.pk/story/541956/jahangir-badars-son-summoned-over-ogra-money-trail/
THE Securities and Exchange Commission of Pakistan durng the period of Muhammad Ali,the SECP Chairman, remained ona relaxation spree, amending rules and regulations governing the markets. Almost on a weekly basis, it issued a statement that certain legal requirements have been ‘streamlined’, ‘revised’ or ‘relaxed’, in the ‘interest of the market. The KSE’s spectacular rise last year can at least be partly attributed to another factor entirely – the cleansing of “black money”.The market took off last year just as a government decree was finalised allowing people to buy stocks with no questions asked about the source of the cash.
@Alimuddin: Yes, you are right. This myth of small investors needs to be broken down. They make money when the times are good and lose when the times are bad. It’s a simple equation. But looking at what happened in 2005 and 2008 in stock markets of Pakistan, feels it was more that just natural 'bad time' Nowhere in world stock markets gets closed down for four years in simple bad times.
Very unfortunate court order. I have worked with Ali, he is the business genius and honest man.
@Rabnawaz, Have you got any idea about the number of "small investors" in listed companies? They are in thousands. Many of them have held blue chip stocks for years, eating dividends and multiplying the stocks through bonuses. Timing is always a matter in which small investors have to be careful. The brokerage industry works on commissions and for that there has to be trade. If people dont trade, brokers dont make money. If they dont make money, they lose money. This myth of small investors needs to be broken down. They make money when the times are good and lose when the times are bad. It's a simple equation.
That is the view of an Investment Banker. When bankers talk of the interest of the market, they're essentially talking of their own interests and that of their banks. Regulators on the other hand are created to protect the interest of the public investors who have a competing interest with say, investment banks. It is therefore vital that regulators remain independent of all interests and do their job to protect the public. Appointment of a broker, which even the writer admits the ex-Chairman SECP was, goes against that independence and objective of the law. SC therefore did what was right. Sighting one example of enforcement action against a brokerage firm hardly counts as independence, especially when the former CEO of that particular brokerage house was all set to take over as Chairman SECP when Muhammad Ali landed the job out of nowhere. As for the booming stock market which is being credited to Ex-Chairman SECP, the Reuters story carried by Express Tribune is enough to tell the tale.
http://tribune.com.pk/story/533626/pakistans-booming-market-no-black-and-white-matter/
very well written..i have listened the man on various occasions...he was a highly efficent man,doing his job honestly..in his tenure, he approached all the main universities to aware the young students about corporate legalities and role of SECP. a very bad decision and a great loss indeed!!
It’s indeed very sad. A man revolutionist in nature, who was about to turn the SECP around. His vision and passion for excellence would remain a benchmark for his successors at SECP
@Tariq: I agree.
I get the impression that the regulators all over the world have been captured by the market.The crashes in 2005 and 2008 ripped apart investor confidence and made the small investor realise that stock market may be a safer avenue for stock brokers to multiply their fortunes but for them, it is a dangerous place where they can sink their savings. This realisation alone has led to desertion of capital market. With the elimination of Law Division as an independent department within the Securities and Exchange Commission of Pakistan and arbitrary dismissal of its legal head the SECP had become a captured agency. Sc has done the graet job to rescue the SECP from the vested special interests of stock brokers.
The removal of Ali from SECP is a loss for Pakistan, its corporate sector, the SECP etc. it is a shame good people are not allowed to complete their tenures in a country like Pakistan...anutter shame