KARACHI, March 6: The Securities and Exchange Commission of Pakistan (SECP) chairman Khalid A. Mirza told the press on Wednesday that he had impressed upon the stock exchanges to play a proactive role as front line regulators. Mirza chaired a meeting of the coordination committees of the KSE and the SECP earlier in the day.

The SECP chairman stated that the meeting, which proceeded in a very cordial fashion, reviewed the market’s risk management system and it was appreciated by the bourse’s representatives that the host of measures, including capital adequacy requirement, T+3 system, restriction on blank selling, circuit breakers and others had transformed the market into a “safe and secure” place for investors.

Mirza stated that a committee, headed by Salim Chamdia, chairman, KSE, would develop and implement the proposals for establishing an Over the Counter (OTC) market in Pakistan that would provide a second tier market for illiquid scrips currently listed on the exchanges. “This committee will submit its report to the SECP within 30 days after which the implementation schedule will be determined,” he said.

The SECP chief was all praise for the present leadership of the KSE, which he said, espoused a progressive approach. He said that the bourse promised to further strengthen the market’s risk management system for which it informed about the various proposals under consideration. He said that he had told the exchanges that market monitoring and surveillance needed to be enhanced to ensure market integrity and investor complaints needed to be resolved expeditiously to restore confidence in the market.

Both agreed to a closer interaction between the market monitoring & surveillance units of the SECP and the KSE and the latter had opened up its doors for the commission’s team, which was a major new step in the right direction.

The stock exchanges, he said, had also agreed with the SECP to work in the direction of strengthening of the governance of the exchanges by increasing the independence of the professional management. He said the commission encouraged the KSE board to wean away from ‘micro management’ and concentrate on regulating issues and making laws. Stock exchanges at Karachi and Lahore already had independent chief executives, while Islamabad was on its way to appointing one, he said. The system audit of members of the exchanges was also urged by the SECP.

The decisions had been taken by the respective boards of the exchanges to initiate those and efforts were being made to increase the capacity of the exchanges to undertake those audits on a regular basis. “The exchanges were also informed that the SECP will shortly start inspection of member books as per the rules,” SECP chairman said.

He said that the representatives of the exchanges appreciated the recent initiatives taken by the SECP in introducing principles of sound corporate governance as part of listing regulations as well as dealing with the role and responsibilities of the auditors in preparing reliable company accounts. By providing that an auditor if found guilty of ‘professional misconduct’ could be debarred for three years or such lesser period as the SECP deemed fit, Mirza stated, the regulator had been provided with real teeth.

He said that auditors could not offer other services to the audit client, except those that came ‘naturally’ to the audit job and ICAP could itself identify such services with the approval of the SECP.

He said that all the three exchanges had extended their felicitations to the SECP on the ‘code of corporate governance’ that was promulgated a day ago. He said that the code had been finalized after discussions and incorporating views of diverse groups and he lauded the efforts of Ibrahim Sidat and Masood Naqvi — members of the ICAP — for their assistance in the preparation of the code.

Mirza stated that the National Clearing and Settlement System (NCSS) was making good progress and seven companies were already on. As software issues had been resolved, in about a month’s time, he expected, another two dozen companies to be inducted into the system.

On the issue of investor complaints, the stock exchanges apprised the chairman SECP of measures taken by them for speedy resolution of complaints. An efficient arbitration process for resolution of investor complaints was being developed by the KSE which would be standardized for the three exchanges once it is finalized.

The SECP chairman observed that the commission had taken the initiative of preparing an investors guide for information of the general public that would be issued shortly. The exchanges were expected to come up with detailed guidelines of their own for informing and guiding the investors about operating procedures of the stock exchanges and the inherent risks involved with dealing in the equity market, Mirza said, adding “standardized account opening forms are also being developed which would incorporate the terms of contract between broker and investor”.