KARACHI: The Securities and Exchange Commission of Pakistan (SECP) and the Pakistan Stock Exchange (PSX) are at loggerheads on the issue of bourse‘s board of directors’ election.

On Dec 29, the regulator had issued directive to the PSX to hold elections for the new board by today (Feb 28). But stiff resistance by the broker directors, together with some independent directors, has thrown the process in disarray.

Following the sale of 40 per cent stake to the Chinese consortium, the 15-member board of the PSX currently comprises four representative of Chinese investors, three selected by the stock brokers, two SECP-nominated while the remaining five are ‘independent’. By virtue of his position, the CEO of PSX sits on the Board as the 15 member.

A broker director told Dawn that the three-year term of the present board, which has accommodated the Chinese members, would end in Feb 2019, after which fresh elections would be due.

The SECP Chairman Zafar Abdullah was not available for comment as he is abroad but a source at the SECP who is privy to the developments observed

that the law provided that the board would be reconstituted on the completion of the demutualisation process.

“We (SECP) are laying stress on the fact that there should also be representation of the public who have subscribed to the 20pc shares issued under the IPO and are now also the owners of the PSX,” he added.

The PSX board held at least five meetings in the last month to sort out the issue, but neither the apex nor the front line regulator is willing to cede any ground.

On Monday evening, one of the independent directors, Rahat Kaunain Hassan handed over her resignation. In an e-mail to the members of the board, she stated that despite multiple meetings of the board, no progress had been made on the matter resolving the SECP directive for holding fresh elections.

Ms Kaunain stated that the PSX, in its effort to resist the directive (which does not stand on legal ground as per legal advice) has been confronted with a trail of correspondence from the regulator.

Her letter seems to mirror the Chinese sentiments “I fully agree with the Chinese representatives that the board and its meetings should primarily be focused on developing the business of the exchange, rather than being entangled in controversies or frivolities.”

Outside sources who are in the knowledge of the matter said that that at the head of the tussle between the SECP and the PSX is the matter of appointment of ‘independent directors’.

Until the completion of demutualisation, the power to appoint independent directors was vested with the SECP. But since the PSX is now a listed company operating under the Companies Act, 2017 it is subjected to the rules under the act applicable to all listed companies.

“The SECP directive cannot supersede the law, which requires that all listed companies should hold elections to the board every three years and the three year term of the current board would expire in February 2019,” said the PSX director. But why is the bourse adamant on postponement of elections by a year? The reason would surprise many. “The term of the present chairman SECP would end in August this year. If the elections are held now, the SECP would have the power to appoint independent directors who it would pick up on his liking,” said this broker director on the PSX board. As enshrined in the Companies Act, 2017, the number of independent directors on the board shall not be less than the shareholder directors.

The SECP source argued that the apex regulator had left it on the bourse to fix the number of directors and that the newly elected shareholder directors (along with representatives of 20pc public holdings) and the existing independent directors shall nominate new independent directors.

“The protection of minority investors remains SECP’s priority area,” said SECP. What option does the SECP now have as the PSX has contravened its directives and failed to form a new board by today? “We have powers under Section 159 of the Companies Act, 2017 to supersede the PSX and enforce the order,” pointed out a senior person at the SECP. Whether the apex regulator exercises that option or not has to be seen.

Published in Dawn, February 28th, 2018

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