KSE: SECP terms appointment of acting MD ‘not valid’

Tussle on KSE board continues.

KARACHI: The Securities and Exchange Commission of Pakistan (SECP) has once again declared the appointment of Haroon Askari as acting managing director of the Karachi Stock Exchange (KSE) “not valid”.

In the latest letter sent by the regulator to the exchange, dated December 9, the SECP has reiterated that the appointment of a managing director by the KSE’s board of directors “requires prior approval of the SECP.”

The communique pointed out that on November 2, the apex regulator had instructed the exchange that the full board of the KSE should ratify the appointment and then seek the approval of the SECP, adding that “since SECP to date has not communicated its approval for the appointment of Askari as acting managing director, the said appointment remains in violation” of regulations.

The notification has instructed the KSE board to refrain Askari from exercising powers of acting MD. It has also directed the exchange to submit an explanation for non-compliance with SECP orders.

Askari has held the post of acting MD for 39 days since the SECP first declared his appointment invalid.

What the bourse says

“The exchange only needs to seek approval from the regulator for appointment of the managing director, not an acting MD,” an official of the exchange speaking on condition of anonymity told The Express Tribune. “There have been at least a dozen occasions in the past where an acting MD has been appointed without the SECP’s nod.”

Meanwhile, a former MD of the exchange refuted the assertion that the regulator’s approval is not needed for this appointment, saying: “The country’s company laws do not permit the appointment of an acting chief executive. You can either be the MD or not.” During the tenure of former MD Adnan Afridi, in the absence of the managing director a coordinator was appointed, not an acting MD.

A little bit of history

Successive reports have highlighted the ongoing tussle between member-directors and nominee-directors at the country’s premier bourse. During a meeting of the board held on October 28, the row boiled over and heated words were exchanged between member and non-member directors.

In a separate letter dated November 2, the SECP had directed member-directors to tender a formal written apology to nominee-directors for the incident. However, so far no such apology has been submitted.

Another show of defiance against SECP rules came on December 2, when the KSE’s board of directors was scheduled to hold a meeting. Chairman KSE Zubyr Soomro had announced that the meeting would be held at the regional office of the SECP in Karachi.

However, all five member-directors of the exchange and the acting MD held a separate meeting at the exchange. The persisting tensions between stakeholders at the bourse also extended to the issue of re-introduction of a leverage product. Nominee-directors had opposed the draft Securities Act of 2010 claiming that it lacked “transparency and would be detrimental to the interests of small investors.”

The differences seem to be so well-entrenched by now that the current KSE chairman has already intimated to SECP that he is not interested in renewing his term, The Express Tribune has learnt. His tenure expires at the end of this month.

Neither the chairman nor nominee-directors were present during US Ambassador Cameron Munter’s visit to the KSE on December 6 as they had decided to not enter premises of the exchange until their member-counterparts tendered a formal apology. The strong-worded letter sent to the KSE board has ended weeks of silent observation by the apex regulator, but whether the SECP will be able to enforce in spirit what it has communicated in letter remains to be seen.

Top slot at SECP

Besides exposing the glaring chasm within the management of the country’s most active exchange, these developments also set the tone for the incoming chairman of the SECP.

Deliberations for the appointment on the top slot within the regulating body are currently underway and the market is abuzz with names of possible candidates. In particular, Farrukh H Khan, co-founder of BMA Capital, is reported as being the most likely choice for chairman.

Published in The Express Tribune, December 11^th, 2010.