KARACHI, Dec 1: The 70-member strong broker ‘biradari’ that made a lot of sound and fury at an informal meeting at the Karachi Stock Exchange on Thursday, did not seem to understand the underlying issue. But a couple of them, who did, thought that the tussle with the Securities & Exchange Commission of Pakistan (SECP) over the right to appoint chairmen of the exchanges was more about power than progress. And it all lay in the numbers.

As the law stands, on the 10-member board of the KSE, five are elected by the stock brokers, four are technocrats including the managing director appointed/ approved by the Securities & Commission of Pakistan (SECP) and the tenth member is the chairman. And here in lies the pinch: As per section 43(c) and Section 69 of the Articles of Association of KSE: “In case of an equality of votes (on any controversial issue), the chairman of the (board) meeting shall have a second or casting vote”. Knowledgeable brokers fear that if the Regulator wrests the authority of appointment of chairman from the brokers, the scale would tip immediately in favour of the SECP. And in effect, stock exchanges would be left powerless. The hawks that dominated the proceedings at the brokers’ meeting on Thursday were hysterical that the letter of proposed ‘directive’, written to the Exchange by the Regulator need not be answered and to march up to the top man in the government in case it was not withdrawn.

But the doves, who tried to calm the crowd, insisted that the whole issue needed to be discussed with the Regulator so as to arrive at an acceptable solution. They argued that there was a ‘technical/legal’ flaw, which perhaps was missed by the SECP’s legal team. According to them, the proposed change could not be made through a ‘directive’ by the Regulator, but by bringing about an amendment in the Articles of Association of the Stock Exchange. They contended that in order to do so, a process has to be followed, whereby the Board first proposes a special resolution in its meeting, which is required to be passed by three-fourth of the members present at a general body meeting. And finally to effect an amendment in the articles of association a 21-day notice must be given to the members. Since the date of election of directors falls on December 15, there was not enough time to bring about the change at least this year. It looks like the issue would finally boil down to the question whether or not a ‘directive’ by the Regulator supersedes the articles of association of the Exchange?

For the ordinary investor the worrying thought would be: Will a prolonged non-resolution of the problem impact or impair the market? On Thursday, at the height of uncertainty, the KSE-100 index oscillated between the red and green, but finished with a gain of 55 points. That perhaps would be the trend going forward. The market would take its own course for besides the local investors, foreign portfolio investment in the market

averaged $50 million a month. Then there were dozens of mutual funds sitting on heaps of cash.

They are not likely to miss any opportunity to pick up value scrips at dips. And the market is now worth $43 billion. Even during Aug-Sept of the year 2000, when KSE’s market

capitalization was no more than $7 billion and about the same controversy had reared its head, the market had pushed the issue on the sidelines

and the KSE index had shot up by 174 points from 1779 on August 2 to 1953 on Septem-

ber 4.