ISLAMABAD, June 23: The management of Lahore Stock Exchange (LSE) has been issued show cause notice by the corporate regulator for failing to meet the timeline for the implementation of demutualisation process.
The three stock exchanges of the country were given the deadline of June 21, 2012 to prepare the basic documentation for demutualisation which included revaluation of assets and liabilities, preparation of the five year plan, development plan and papers regarding segregation of regulatory and commercial functions.
“However, the LSE failed to meet the basic requirement that is revaluation of assets and liabilities,” said an official of the SECP, adding, “The show cause issued will serve as a warning for LSE and other stock exchanges that they needed to observe discipline to implement demutualisation.”
In this regard the SECP has issued 11 show cause notices including one to the Lahore Stock Exchange (G) Limited, and individually to all the board members, chairman LSE Aftab Ahmad Khan, Managing Director, Aftab Ahmad Chaudhri and eight directors including Amer Ilyas, Ms. Bushra Naz, Jahanzeb Mirza, Mahmood Azam Awan, Ch. Muhammad Afzal, Mumtaz Hussain, Omar Khalil Malik and Shahid Mahmood.
Sources said that the SECP had informed all the three stock exchanges of the country to prepare for the demutualisation even before the presidential ascent of the Stock Exchanges (Corporatisation, Demutualisation and Integration) Act, 2012 on May 07.
“It was observed that some key players in the stock markets were opposed to demutualisation – we want to make sure that any such lobby is not active again to derail the process,” the official said.
The show cause notice has been issued under clause (b) of sub-section (1) of section 4 of the Stock Exchanges (Corporatisation, Demutualisation and Integration) Act, 2012, which requires that a stock exchange shall within 45 days of commencement of the Act, submit to the Securities and Exchange Commission of Pakistan (SECP).
Officials said that the LSE was intimated by SECP through a letter on May 29, 2012 to submit the required revaluation of its assets and liabilities in terms of the aforesaid provision of the Act within the 45 day time period which ended on June 21, 2012.
However, the LSE has failed to submit the required revaluation of its assets and liabilities, despite being informed by the Commission of this requirement of law and therefore has prima facie contravened the provision of the Act. The show cause notice read: “A re-valuation of the assets and liabilities of the stock exchange as at 30th June, 2008, or as at any other date as may be specified by the Commission, undertaken by a firm of Chartered Accountants approved by the Commission in accordance with the prescribed criteria based on which valuation, the number of shares of ten rupees par value proposed to be issued will be determined.”
The SECP has directed the LSE management to respond to the show cause notice in three days and all the eight directors, chairman, MD and other officials have been called to directed to appear or through an authorised representative before the Commission on June 27, 2012 at 10.30 am at the SECP head office in the federal capital.
As per the law the SECP can impose penalty up to Rs20 million on the LSE or suspend /cancel its registration as stock exchange if found guilty of deliberate negligence. Whereas SECP can impose fine up to Rs1 million on any director found responsible for the delays.
This penalty is to be paid from personal sources of the director. Besides, the directors can even be removed or suspended from the Board of the stock exchange.