ISLAMABAD, Sept 2: Securities and Exchange Commission of Pakistan, in modification of its earlier directive, restored here on Monday the power of the members of stock exchange to elect a broker as Chairman.

This was done, says an SEC announcement, in response to “recommendations/suggestions made by the management of Karachi Stock Exchange.” The compromise decision of the SEC thus effectively averted a crisis that erupted after the brokers of KSE declared their resolve to resist the SEC’s move of doing away with their control over the management of the stock exchange.

On August 13, the SEC had issued a directive to the three stock exchanges, according to which the Board of Directors of the stock exchanges shall comprise eight directors, four elected from amongst the members by the general body of the stock exchange and four independent directors to be nominated and appointed by the Commission.

These independent directors were to be taken from amongst the professionals including securities market experts, lawyers, chartered accountants, investment bankers, IT experts in consultation with the professional bodies “as the Commissioner may consider appropriate.”

Furthermore, SEC had further directed, managing director of the exchange shall be a director by virtue of his office. Another major change was that the chairman of the Board of Directors shall be elected by the Board of Directors from among the non- member directors and the post of vice-chairman of the exchange was abolished.

While the stock exchanges of Islamabad and Lahore acquiesced in the SEC’s decisions, there erupted a veritable revolt among the members of Karachi Stock Exchange. A flurry of meetings followed between the chairman of SEC, Khalid A. Mirza and Commissioner Shahid Ghaffar on the one hand and various major members of broker community.

Last week, KSE management sent a delegation of KSE members led by Chairman Salim Chamdia for negotiations with the SEC in Islamabad. Other members of the delegation included Ibrahim Dhalal, a member, as well as the acting Managing Director and an outside director.

Consequently, the SEC has now decided to raise the number of directors to nine, giving five seats to brokers. The number of outside directors would be 4. It acceded to the delegation’s demand that the managing director would be the 5th member but would not vote in election of the chairman.

Asked what substantive change had resulted from the two directives, Commissioner (Securities Market) Shahid Ghaffar said the Chairman of stock exchange would no longer be elected by the general body comprising all broker-members but by the Board of Directors as a whole including outside directors.

As such, the Chairman would no longer be answerable to 200 members. Thus freed of pressure from that electoral college, the Chairman would be responsible to the board of directors and all the stakeholders and not merely to the brokers as heretofore.

The second outcome of talks was reduction in size of the board of directors. With 18 members, it was wieldy and, therefore, unable to discuss serious issues. The SEC, therefore, wanted to make the board manageable so that it could take timely decisions after due deliberation.

Even the brokers who opposed some parts of the SEC’s directive of August 13 agreed on the need of downsizing the board. They also welcomed the abolition of the office of vice-chairman—a decision which has been retained.

The SEC, he said in reply to a question, was advising the stock exchanges to demutualise themselves. At present, these are non-profit organizations. In Australia and Hong Kong, he said, stock exchanges as listed companies were earning money.

The Commission, Ghaffar further stated, had been assured by the stock exchanges that they were considering the proposal.

The SEC would, however, let them make a decision independently and would not try to force them on the matter, he added.