The Securities and Exchange Commission of Pakistan (SECP), recently released its third annual report, covering the year July 1, 2001 to June 30, 2002. With Khalid Mirza, resigning on March 29, this year, the report would have to be the last with that highly flamboyant chief regulator at the head of the commission.
Among all the people who have come to occupy that post since Irtiza Husain was first appointed chairman of the Corporate Law Authority (the precursor to the current SECP) in 1984, Khalid Mirza has perhaps been the one whom most regulatees have loved to hate. When this was pointed out to him by this scribe in a recent interview from Washington DC, where he now works for the World Bank, Mirza gave a hearty laugh and answered that he considered that to be the most appropriate test of his success as the chief regulator.
In his message written for the Annual Report 2002, Mirza sums up many of the actions that the commission attributes as its achievements: “During the preceding year, the commission took a number of steps designed to engender faith in the integrity of the market and endeavoured to improve the governance and risk management aspects of all the three stock exchanges.” Mirza also said that consequent to those actions, both price discovery and trade settlement as well as investor dispute resolution had become visibly efficient, fair and transparent. “Corporate governance”, the regulator noted had been the focus of attention during the year under review.
The commission was eventually able to finalise and implement a ‘Code of Corporate governance’ by making it a part of listing regulations, which consequently became applicable to all listed companies.
The report by the chief regulator details steps taken to enhance the regulatory enforcement capacity of the commission which, it says, had resulted in better monitoring of the capital market and corporate sector. During the year, the regulatory purview of the commission had been broadened and all non-banking financial institutions, with the exception of development finance institutions had been brought within the purview of the commission.
During the year, the commission substantially implemented reforms envisaged under the Capital Market Development Programme of the Government of Pakistan and the Asian Development Bank. The reforms were targeted towards engendering faith in the integrity of Pakistan’s market and sought to improve both governance and risk management at the stock exchanges. Khalid Mirza also said that other areas related to corporate governance, like dissemination of adequate and timely information as well as the issue of reliable audits, were also addressed by the commission.
The latest annual report of the SECP is more elaborate than the earlier ones. The regulator’s office is divided in eight divisions, with each section devoted to an elaborate discussion about the personnel, plans and progress in those areas. The sections include: organisation (highlighting the organisational structure, securities and exchange policy board, policy board meetings and divisions and the management team); securities market division (mainly discussing the stock market, developments in capital market, monitoring and surveillance, investor complaints, beneficial ownership, issue of capital, review of prospectuses and supporting documents and inspection of books and records of members);specialised companies division (that deals with leasing, modarabas, mutual funds, venture capital companies and venture capital funds, special purpose vehicles for asset backed securitization, credit rating companies and oversight of accountancy profession); enforcement and monitoring division (that concerns regulatory actions, monitoring and enforcement and cost audits); Company Law administration division (that tells about improvements in operational efficiency, introduction of new schemes and systems, developmental activities, regulatory actions, monitoring and enforcement and approvals and permissions); insurance division (that discusses regulatory actions, monitoring and enforcement and other developments); support services division (that include human resource, administration and finance and accounts) and other developments division (which includes corporate governance, legal wing, information technology wing, vigilance cell and external communication).
In his message, the outgoing chairman, Khalid Mirza also noted down the items on his unfinished agenda, which included: deepening the market and improving risk management at the exchanges; further strengthening audit practice and enforcement of IASs; to clarify, reinforce, and enhance standards of corporate governance; facilitate a vibrant primary market with strong underwriting and distributive capacity; develop and strengthen the mutual funds, the pension funds and the insurance industry to provide the market institutional underpinning; develop and implement a phased programme for replacement of carry-over transactions or “Badla” by margin financing and future contracts; and to encourage on-line trading, electronic communication networks (ECNs) and alternate trading systems and develop a regulatory framework for on-line trading. ECN is seen to be on the future agenda of the commission. But the grant of licence to PEX Limited, the first ECN with the regulatory status of a stock exchange, by Khalid Mirza at the fag end of his term, has left the issue at the heart of a heated controversy.
