The board’s approval of change in the articles of association of stock exchanges specifying three-year term for directors would now be passed on to the members for their endorsement at yet another extraordinary general meeting. - File photo

KARACHI: The directors of the Karachi Stock Exchange approved three-year term for the Board at an emergent meeting held on Thursday.

The period was raised from current one year to comply with the order of the Securities and Exchange Commission of Pakistan (SECP).

On Feb 19, the apex regulator had issued a directive asking companies limited by ‘guarantee’ to ‘strictly act’ within the ambit of the provisions of Section 180 of the Companies Ordinance.

The clause specifically mentions that companies should ensure that their boards of directors are elected for a period of three years.

Having failed to coax stock brokers to voluntarily agree first to a three-year term and after their disapproval to a two years period--both proposals rejected by the members at separate extraordinary general meetings, the regulator had considered using, what many thought was ‘a soft legal stick’.Yet many brokers were upset over the SECP’s use of provision in an ancient law--for companies Limited by guarantee--to make the brokerage community fall in line.

The KSE was incorporated 63 years ago on March 10, 1949, as company ‘limited by guarantee’ under the Indian Companies Act VII of 1913 (as applicable to Pakistan).

The SECP directive of February did not mention the stock exchanges, but given the fact that ‘Companies limited by Guarantee’ are almost extinct, the brokers’ suspicion of the order specifically carved out for stock exchanges carry weight.

All companies listed on the stock exchange are ‘limited by shares’, incorporated under the Companies Ordinance.

A person familiar with the ‘minutes’ of the board meeting on Thursday said that there was no stiff resistance from the four broker directors, but they did ask the Regulator also to apply other clauses of the Companies Ordinance to the stock exchanges, such as selection of the chairman by all 10 members on the board, instead of the SECP nominated five.

The board’s approval of change in the articles of association of stock exchanges specifying three-year term for directors would now be passed on to the members for their endorsement at yet another extraordinary general meeting.

But many market participants thought that sanity might now prevail. “It is unlikely that brokers would disregard the regulator’s directive,” said one.

Apart from the fact that a standoff with the SECP would be of no use to the brokers, the community is quite pleased with the stock exchange performance in the last few months; the KSE-100 index gaining 1,002 points in just one month of February, with bumper volumes.

“Who will want to be spoiler of the market when good times are rolling?” asked one observer.