KARACHI, Nov 30: The directive from Securities & Exchange Commission of Pakistan (SECP) to the three stock exchanges to appoint a non-member director as the chairman of the stock exchanges came on Tuesday, as a bolt from the blue. Till late in the evening on Wednesday, it was not clear whether the directive was in place or was subsequently withdrawn on ‘technical grounds’. But the episode is a reminder of the crisis of mid-August 2002, when the commission had issued a similar order. After a great deal of hue and cry by the members, the regulator modified its stance and let the chairman of the bourse be a broker.

But the re-opening of the old case was the second such tool displayed to the bourses by the SECP in less than 10 days. Earlier last week, the commission almost enlivened the case of Electronic Communication Network (ECN) — an alterative trading system to the three stock exchanges in Pakistan — for which a licence was granted by the commission to PEX Limited in Feb 2002.

Stock brokers had then taken up cudgels against the SECP and the KSE had obtained a ‘stay order’ from the Court. Last week, almost surprisingly, the SECP pleaded to the Court that the case be disposed of as the ‘stalemate’ was doing nobody any good. Following that development, the KSE took the plea that it did not want to “press the issue”, and the case was disposed of.

Friendly cricket matches between the SECP XI and Stock Exchanges XI, may go on to sweeten the relationships for a time. But as the former flamboyant chairman of the SECP Khalid A. Mirza used to say: “Regulator and Regulatee can never be friends”. There have been host of issues in the recent past on which the two sides did not see eye to eye. The hullabaloo on the phase out of COT and the attempt to replace it with margin financing is still fresh in the mind. But perhaps the two things that have terrified the stock broker community most are the birth of PEX and the appointment of non-member as chairman of the bourse. The SECP seems to have used both cards in succession. But to what end?

Most of the market does not have the foggiest idea. But some senior stock brokers thought that perhaps the regulator was trying to terrify members into submission in regard to demutualization of the exchanges. SECP has been goading the stock exchanges for demutualization — a system that separates the ownership from management. KSE is known to have resisted the move, though everyone at the market does not admit that to be the case: “We have not just welcomed demutualization but even paved the way for the process to take place”, argued a senior broker. Is the apex regulator then pushing to shake the resolve of the bourses, before launching on to its commitment in respect of third generation reforms? The developments going forward would tell if that really is the case.

Experts who subscribe to the view of the regulator contend that the recommendation of appointment of non-member chairman was carried in the Task Force Report that investigated the stock market crisis of March 2005. “As a front-line regulator, why didn’t the exchanges themselves went on to implement the recommendations, instead of waiting for the apex regulator to issue a directive?” they ask.

But the stock markets can hardly afford a tussle now as it did some years ago. When the swords were last drawn on the issue in 2002, the market capitalization of KSE was an insignificant $7 billion. It has now multiplied to $43 billion.

Meanwhile the process of election of directors to the KSE Board was in progress. Up until the closing time at 2:30 pm on Wednesday, as many as 13 stock brokers had filed nominations for five seats on the Board of the Exchange. They included: Haji Ghani Haji Usman; Adil A. Ghaffar; Salim M. Sozer; Mohammad Yasin Lakhani; Mohammed Siddique Dalal; Asad Iqbal; Muhammad Saleem Rathod; Haji Haroon Kapadia; Muhammad Anas; Munir M. Ladha; Zafar Moti; Mohammed Idrees Ismail and Abid Ali Habib.

Elections are to be held on December 15, at which the 200-member stock broker fraternity would cast their votes. On a 10-member board, the SECP reserves the right to nominate four directors. The tenth place is occupied by the managing director who is appointed by the board with the approval of the SECP.