KARACHI, April 4: The board of directors of a subsidiary, through which a bank or development finance institution (DFI) intends to set up a brokerage house, should be completely independent and different from the board of directors of the bank/DFI.The bank/DFI may, however, nominate its employees on the board of directors of the subsidiary up to 25 per cent of the total directors and the remaining directors nominated by the bank/DFI should be independent individuals, according to the new rules announced by the State Bank on Monday.

Earlier on January 28, 2005, the central bank had said that the bank/DFI was free to nominate its employees on the board of directors of the subsidiary up to 50 per cent of the total directors and the remaining directors nominated by the bank/DFI should be independent individuals.

The Banking Policy Department of the central bank has now withdrawn this ruling, according to its circular No 13 issued on Monday, without explaining the reason.

As a result, its ruling of March 8, 2004 on this subject stands restored according to which a bank or DFI can nominate its employees on the board of the subsidiary up to 25 per cent of the total directors. When the central bank had first issued guidelines on this subject on February 10, 2004,

it had said that the bank/DFI can nominate

its employees on the board of directors of

the subsidiary up to 40 per cent of the total

directors.

The changes in the policy show the central bank is a bit unclear on the right combination of the directors to be appointed from amongst the employees of the bank/DFI and those from independent individuals.