May 1, 2006	Monday	Rabi-us-Sani 2, 1427

THE growing tendency in the Securities and Exchange Commission of Pakistan (SECP) to centralize all its functions have started causing problems, affecting the operations of the stock markets.

The SECP, as a regulator of stock markets and non-banking financial companies (NBFC), is failing to perform its mandated functions.

Interestingly, right now there is no commissioner for Securities Market Division, whose job is to regulate the capital and stock markets. The executive director of this division is reportedly planning to quit because he is not acceptable to the present SECP management.

This is not the end. Surprisingly, no commissioners have so far been appointed for the organisation’s legal department, insurance department, administration department, information technology (IT) department and human resource (HR) department.

The Chairman himself has taken over the functions and powers of these commissioners. The government is supposed to appoint these commissioners.

However, insiders say that unless SECP proposes their names, they cannot be appointed by the government. Why they are not being appointed is a million dollar question being debated in the concerned quarters, with the impressions gaining ground that the regulator needs better corporate governance.

Since March 2003 when the most talked about code was invented by SECP and made part of the listing regulations at the Stock Exchanges, the regulator has been busy trying to implement it in the private sector companies.

The regulator unleashed a plethora of conferences, talk shows, media publications, investors’ education seminars with the help of grants and loans from Asian Development Bank (ADB) and other international development institutions.

It was said that the code will protect the interests of the minority shareholders. It was also said the code will bring Pakistani private businesses closer in comparison with their foreign counterparts by improving transparency. However, the regulator forgot to identify penalties on businesses who do not adhere to the code. Code is as the name suggests a code and not a law, therefore, blessed are those who adhere to it and blessed are those who do not.

The most important part of the code of good corporate governance, however, lies in the code itself. It rests with the regulator. The regulator has yet to show respect to good corporate governance itself by implementing the code in its own operations.

The dismissal of Dr Tariq Hassan on Eid holidays indicates absence of the good corporate governance practices in the government. Also if we look back a little, we will find out that Dr Tariq made a decision to abolish badla on the wishes of his ex-commissioner for securities market. Being a lawyer, he knew little about the securities markets.

Perhaps, his decision was considered too insignificant to be put forth to the SECP’s Policy Board. The so-called policy board is known within the organization for approving the annual budgets and salary structures of the employees.

The policy board also never convened its meeting when the stock market shot up to 10,000 points in two months time, questioning such a major rise in such a short span of time. Neither it paid any heed to the subsequent market crash in March last year. The regulator hurriedly formulated a committee to investigate the crash, the report of the investigation was sent to the policy board and that was just about it.

The decision to abolish badla was also probably too insignificant to be discussed in another forum called the Commission’s meeting. All the powers of SECP are vested in the Commission comprises of all the commissioners of SECP. This forum is provided by the SECP Act so that decisions concerning capital markets are not made by individuals, instead a more exhaustive collaborative pooling of knowledge can take place.

Any policy decision or approval is discussed among the commissioners and after careful study and due thought process the fate is decided. However, the Commission too failed to pool knowledge on the matter of badla as it was never discussed in it.

In fact in order to broaden the scope of knowledge and thought process, Dr Tariq Hassan also included Mr. Abdur Rehman Qureshi in the Commission’s meeting as he was made an adviser to the SECP chairman after his term as a commissioner expired last year. He now sits in the Commission meetings (without being named as a member of the Commission) and his attendance is not recorded in the minutes. The SECP is short of four more commissioners. It currently has two commissioners who look after numerous departments.

In Mr Qureshi’s invisible presence, matters regarding the growth of the corporate sector are discussed and among these there is also a matter of improving employee morale which came up in one of such Commission’s meeting.

The Commission deliberated on this specific issue at length and almost for an hour and a half and decided that provision of two cups of tea to every employee of SECP free of cost will definitely improve employee morale. This decision created jobs for tea boys and a contractor whose responsibility is to provide one cup of tea in morning and one cup after lunch hours. Perhaps this decision was more important than pondering upon sudden increase and then subsequent fall in the stock market.

The legacy of in-action in case of Islamic Investment Bank Limited still looms large over SECP. The SBP transferred regulation of investment banks to SECP in 2002 and had informed it of mounting losses in Islamic bank as well as its rising deposits.

SECP set up a committee in 2004 after a lag of two years to look into the affairs of the bank. The committee decided that the bank must be allowed to go on for some more time despite its huge losses.

During this time, the bank was allowed to operate as an investment bank though it did not have a licence and kept on raising deposits. SECP only acted once it got the reprimand from Supreme Court when the bank indicated its inability to repay Supreme Court’s deposit. Hundreds of depositors in Islamic Bank were defrauded by its management which is currently under NAB custody.

The change in the leadership at SECP has yet to bring any fruits for the market or the corporate sector. The SECP functions are over-centralised. The chairman has also taken away charge of the HR department from the concerned commissioner and has directed the department to report to him directly. The question is - who will fix the corporate governance of the regulator?