March 7, 2003	Friday	Muharram 3, 1424

KARACHI, March 6: The Board of Directors of the Karachi Stock Exchange opted by majority vote to take the battle against the granting of licence to PEX Limited for setting up an Electronic Stock Exchange, to the Courts.

Dawn has learnt that on the conclusion of a marathon meeting that began at 1 pm and concluded past 8 in the evening, all five broker-directors on the nine-member board voted in favour of a legal action. Two of the SECP-nominated directors, namely Habib- ur-Rehman and Kamal Afsar did not attend the meeting while the other two voted against. Managing Director, Moin M.Fudda, abstained.

In a press release issued late in the evening, the KSE stated that the Board among other matters discussed the issue of granting registration to PEX Limited to act as an ECN with the requisite regulatory authority of an stock exchange under Section 5 (2) of the Securities and Exchange Ordinance, 1969.

The KSE statement said: “It may be recalled that following the last Board Meeting held on Feb 18, 2002, the board had sought clarification from SECP on this issue. In todays’s meeting the board deliberated on the response received from SECP.”

KSE said that the Managing Director briefed the board about the contents of the said response and presented the views of the management on various development tasks including introduction of internet trading and automation. MD, KSE also said that had the SECP given an opportunity to the KSE management to present their viewpoint on ECN as an exchange, they would have strongly argued in favour of launching of ECNs by existing stock exchanges and as well as reduction of costs of trade.

“It may be recalled that the very first letter of SECP dated Feb 6, 2003, addressed to the three stock exchanges did not disclose that the presentation was for establishment of the fourth stock exchange rather it was a presentation on ECN,” the press release stated.

KSE stated that all five member directors present in the Board meeting while expressing their great discontentment over the response received from the SECP, proposed to opt for legal remedy in order to safeguard the interest of members and the institution at large. The member directors also desired to associate the other two stock exchanges of the country in the process, which were equally affected by the grant of the said registration.

The press release stated that the two nominee directors present in the board meeting were strongly of the view that instead of adopting the legal course, the board should constitute a committee comprising directors and other senior members to first hold discussion on urgent basis with the SECP officials for a satisfactory resolution of the issue. “However, member directors observed that such discussions and debate should have taken place prior to grant of registration as envisaged under Section 5 (2) of the Ordinance in order to ascertain the proposal in the interest of trade and public,” KSE said.

The nominee directors still felt that it was in the greater interest of the exchange to arrive at a solution through dialogue rather than confrontation. The chairman agreed to consider their proposal in consultation with other member directors, the KSE said and added: “The member directors concluded that since the response of SECP did not leave any room for further dialogue and time being of essence, they felt that any delay would jeopardize the interest of the members and the Exchange.

At that point, they proposed a resolution to authorize the chairman of the board to proceed with legal course. The resolution was carried and approved by five in favour and two against, whereas Managing Director abstained from voting,” the KSE press release concluded.

The majority-approved resolution by the board to seek legal recourse comes after nearly three weeks of nerve-wrenching tension that has gripped the capital markets, following the grant of permission to set up an Electronic Communication Network (ECN) with the regulatory status of an Stock Exchange to PEX Limited.

The registration was granted by the ex-chairman Securities and Exchange Commission of Pakistan (SECP) Khalid Mirza to PEX Limited—an ECN owned by Jahangir Siddiqui, stock broker turned investment banker.

Other stock brokers have since been up in arms, protesting that the licence had been granted in ‘haste’ and ‘without providing any relevant information’. The request by the KSE Board in the earlier meeting held on February 19 to SECP “not to take any further action in the matter until the views of the KSE were forwarded to them” was turned down by the SECP through a reply dated Feb 25. The Commission had told the KSE that granting of such a registration under section 5 (2) of the Securities and Commission Ordinance, was “prerogative of the Commission” and it was not the “domain of the Board to question the regulatory authority of the Commission” in the matter. A gathering of a large number of stock brokers at an informal meeting at the KSE on Tuesday had demanded of the broker directors to take the battle to the Courts.