SECP to continue nominating KSE chairpersons

Approves appointment of acting managing director of the bourse.

KARACHI: The Securities and Exchange Commission of Pakistan (SECP) has reiterated that the chairman of Karachi Stock Exchange will continue to be nominated by the apex regulator and will not be selected from among members of the exchange.

An announcement on Friday gave details of a meeting between the incoming SECP Chairman Mohammad Ali Ghulam Mohammad and members of the exchange.

The SECP said the mechanism in place for nomination of the KSE board chairman was “for good corporate governance and in line with international best practices”, but failed to mention that it was also a legal obligation. Stock market reforms introduced during 2005 mandate that five members of the board of directors of the exchange, including the chairman, must be non-members.

The SECP also approved the appointment of acting managing director of the exchange for an interim period and reiterated the need for an early completion of transparent process for the appointment of a permanent managing director. “It was agreed by KSE board members that functions of internal audit and market surveillance at the exchange will remain in place,” the SECP said.

However, general managers of the two departments, who had been forced out by member-directors recently, have not been reinstated. General manager internal audit and compliance Fiyaz Longhi and general manager market control and surveillance Junaid Mirza were removed from office on December 21. Both general managers had expressed their reservations about legality of their dismissals.

The meeting was attended by member-directors from both the outgoing and incoming boards. The SECP chairman also met separately with nominee directors from the outgoing board.

Speaking on condition of anonymity, a source privy to the meeting’s proceedings revealed that the chairman was apprised of the concerns that nominee directors have been raising with regard to corporate governance and protection of investor interests. “The chairman assured the nominee directors that their recommendations will be kept in mind while introducing further reforms and new products in the market,” added the source.

The issues that were…

Rift between member-directors and nominee directors resurfaced in August while deliberations were under way for the development of a new leverage mechanism for equities trade at bourses. Nominee directors, led by former KSE chairman Zubyr Soomro, opposed the draft Securities Bill 2010, arguing that the legislation lacked transparency and protection for financiers against broker default.

Issues came to a head when more than 65 members of the country’s premier exchange signed a petition that called on the SECP to withdraw the bar on the appointment of a member of the exchange as its chairman. That attempt was shot down by then SECP chairman Salman Sheikh.

Sheikh cajoled the board members into negotiating over clauses of the securities draft and on September 15 the apex regulator approved a concept paper for the intended legislation.

However, the chasm between member and non-member directors of the board continued to mount. On November 3, the apex regulator once again wrote to the exchange, terming the appointment of acting chairman “against regulations and not valid”.

According to an internal notification issued by the KSE on December 21, the member-directors decided to merge key departments of the exchange including market control and surveillance, human resources and dispute resolution. In the same meeting, it was decided that the audit function would be outsourced.

Surprisingly, in the absence of all nominee directors, these measures were only approved with the help of acting MD, as he cast the deciding vote. At that time, the SECP had not validated the appointment of acting MD. The incoming chairman has finally set the cart before the horse by validating the appointment of acting MD.

Published in The Express Tribune, January 2^nd, 2011.