Sweeping changes made at KSE

Audit department outsourced, several departments merged.

KARACHI: The Karachi Stock Exchange (KSE) has embarked on a series of sweeping changes in the management which has been termed “restructuring towards cost-cutting”.

According to an internal notification issued by the exchange, the board of directors of the KSE met on December 21 to deliberate on the consolidation of functions and outsourcing of certain departments. However, due to the ongoing rift between members of the exchange and nominee-directors appointed by the Securities and Exchange Commission of Pakistan, the meeting was only attended by acting Managing Director of KSE, Haroon Askari and five member-directors, namely Abid Ali Habib, Yaseen Lakhani, Dawood Jan Mohammad, Munir Khanani and Abdul Majeed Adam.

Explaining the rationale behind the move, Askari told The Express Tribune that “turnover at the exchange has dropped significantly when compared to the levels seen in 2007.”

He said “at one time we were witnessing a turnover of about $600 million daily while now it is more like $30 million per day. At the same time, costs at the exchange have surged as we have expanded from having one general manager some years ago to 10 general managers currently.”

He said that given the “top-heavy” structure, it has become unavoidable for the exchange to implement austerity measures.

Under the plan, the department of internal audit and compliance has been outsourced and services of its general manager Fiyaz Ahmed Longi have been terminated.

A letter issued to Longi, which is available with The Express Tribune, said “the board took certain human resource-related decisions with a view to cutting down human resource-related expenses significantly, which included consolidation of functions.” Upon receipt of the letter, Longi added the comment, “it may be noted that the KSE has adopted the code of corporate governance and as per the code, the position is statutory and I understand that it cannot be made redundant and may not stand the test of trials. The letter is accepted under coercion with no opportunity of being heard.”

However, Askari said “it is only the position of the general manager of internal audit and compliance that has been termed redundant and not the department.” He asserted that the department will now be outsourced and that this will cut cost and improve its independence and effectiveness.

The department of human resources and administration has also been disbanded and merged with the finance department, while the department of dispute resolution has been merged with the legal department. Similarly, the department of market control and surveillance has been merged with the department of risk.

The general manager for market control and surveillance, Junaid Mirza, had tendered his resignation on December 23. However, Mirza said he had been forced to resign and alleged that “given the nature of my work, I had time and again questioned the same people responsible for my removal over anomalies in market trade.”

The acting managing director responded that “the services of the outgoing general manager have always been appreciated by the exchange and his work will not be abandoned but will be further developed.”

Nominee-directors and the current chairman of the exchange were not present during the fateful meeting where the austerity measures were approved. However, one of the participants of the meeting said “the decision of the board is supreme and that the decision requires the approval of a majority of the board which was received.”

The rift between members and non-member directors of the exchange seems to have widened as a consequence of these measures with one non-member director terming the move “an assassination of the principles of corporate governance.”

Meanwhile, the term of the chairman of the exchange will conclude by the end of the coming week along with the tenure of nominee-directors. It appears that the ongoing feud that has engulfed the otherwise silent bourse will conclude for better or for worse.

Published in The Express Tribune, December 26^th, 2010.