ISLAMABAD, Aug 13: A new directive issued by the Securities and Exchange Commission of Pakistan on Tuesday will do away with the exclusive control of the stock brokers over the management of all the three stock exchanges.

This follow the drastic change in the composition of board of directors of each bourse where it will have equal number of elected (stock brokers) and non-member directors from their next election, a knowledgeable source told Dawn.

This is the first step towards the realization of the long- standing programme of the regulator to de-mutualize the bourses as part of its multi-dimensional reform agenda to promote governance and ensure transparency and efficiency as the pre-requisites of restoration of investors’ guidance, remarked a knowledgeable source.

To be operative from September 15, the new directive does away with the many prerogatives of the stock brokers who controlled the stock exchanges. As a result of the changes ordered by the Commission now, the ground would be laid for ultimately converting the bourses as guarantee companies into listed companies to be run by professional managers in the interests of the shareholders as well as the investors, the source observed.

Under the directive issued by the SEC, the board of directors of each stock exchange would comprise nine directors as follows: * Four directors to be elected from amongst the members by the general body; * Four non-member directors to be nominated and appointed by the Commission from among professionals including but not limited to non-member securities market experts, lawyers, chartered accountants, investment bankers, I.T. experts, and management experts in consultation with such professional bodies as the Commission may consider appropriate e.g. Management Association of Pakistan (MAP), Institute of Chartered Accountants of Pakistan (ICAP), Institute of Cost and Management Accountants (ICMAP), Pakistan Banks Association, Investment Banks Association of Pakistan, Modaraba Association of Pakistan and Leasing Association of Pakistan; and * The Managing Director of a bourse would, by virtue of his office, be a director of its board.

The SEC further struck a blow at the status quo by directing that the Chairman of the Board shall be elected by the directors from among the non-member directors. Under the previous system, the Chairman was elected directly by the general body comprising the stock brokers and was invariably a stock broker himself.

Another casualty of the SEC’s directive is the post of Vice- Chairman. No such office would exist from the next elections. Nevertheless, the new rules issued under section 34(4) of the Securities and Exchange Ordinance, 1969, would not be applicable to the existing Board of Directors for its present term. These would come into operation only after the next elections that would be held under the new rules.

In order to allay any apprehension about the conflict of interest and to further ensure transparency in the manner in which the board matters are dealt with, the directive provides that no director of the exchange shall participate in any discussion and/or vote on any matter if he has any interest, pecuniary or otherwise, in such a matter as could reasonably be regarded as giving rise to conflict of interest between his duty to honestly discharge his/her functions as a director on the exchange.