KARACHI, Dec 10: Half way through the month of December and the tussle continues between the Securities and Exchange Commission of Pakistan (SECP) and the Karachi Stock Exchange (KSE) on whether a broker or non-member could be the chairman of the board of directors of the Exchange, for the year beginning from January 2006.
SECP chairman Dr Tariq Hasan has launched a scathing criticism of the electronic and print media in what he thinks is their fostering the views of the financial intermediaries (stock brokers). In a write-up published on Friday, he stated that on Nov 29, the SECP had issued directives to the Karachi, Lahore and Islamabad stock exchanges instructing them to amend their constituting and governing documents to ensure that the chairperson of the exchanges would be elected only from amongst the independent, non-member directors, rather than from among the member directors, of the exchanges.
The SECP’s ‘pious’ mission in this regard has been stated to be to ensure transparency and good governance in the exchanges at an accelerated pace. The chairman does not agree that the directive is not capable of implementation because of paucity of time. He points to a section of the Companies Ordinance, 1984, which allows the exchanges to obtain a waiver of 21 days from the Registrar of Companies and observes that the Islamabad Stock Exchange (ISE) has already exercised this option.
“The SECP is fully empowered to issue a directive and require it to be complied with, within a time period stated in the directive (in this case, 10 days). In case that the exchanges fail to implement the directive given, the SECP may then implement it itself.” writes Dr Tariq Hasan.
On the other side, the KSE disputes the SECP stand on the subject and temperatures are once again running high. In a public announcement, the KSE observed that an emergent meeting of the board of directors was held on Dec 6, to consider SECP letter of Nov 29, to amend its Articles with regard to election of chairman, out of the non-member directors, latest by December 9. The notice said that the board deliberated the matter in detail and since the issue involved had raised legal questions, the board “unanimously” decided to seek legal opinion on the entire issue before proceeding further.
Interestingly, last month’s friendly cricket match in Islamabad between the SECP XI and the Stock Exchanges XI and the lavish lunch, “perhaps sponsored by market intermediaries”, did little to sweeten relationship between the two.
Transparency and good governance of the stock exchanges is, incontrovertibly, in the interest of all stakeholders, including the issuers of capital; the financial intermediaries and the investors. But the controversies, such as the current one, on whether a member or non-member should be a chairman, ought to be addressed by the SECP, (the apex regulator) and the KSE (the frontline regulator) through mutual discussions. It would, indeed , reflect sadly on the regulators, if like in the March crisis, minister and adviser, Dr Salman Shah and Omar Ayub Khan and senior bankers led by Shaukat Tarin, would be constrained to step in to broker talks so as to salvage the stock market out of another crisis. There could be no substitute for resolution of differences between the SECP and KSE —which unfortunately have now become a regular feature — than to talk things over and find a solution. Delegations of members from KSE rushing to Islamabad for a day or two and letters flying between the two cities create more misunderstanding instead of clearing things up. Neighbouring India, when faced with similar situation, found an answer: The Securities and Exchange Board of India (SEBI) -— an equivalent to our SECP — shifted its head office to Mumbai, the city where the country’s biggest stock exchange is located. The SECP can emulate that example and relocate its head office in Karachi, for a smoother coordination between the two. In the interest of all stakeholders, affairs of Pakistan’s capital markets ought to be taken seriously for it is no longer worth just around $7 billion as was in 2002, but now has a market capitalisation as high as $43 billion. Foreign portfolio investment flowing into the market, on average, has risen as high as $5 million a month.
Dr Tariq Hasan laments: “The issue raised by certain members of the KSE is being given wide publicity in the print and electronic media”. But isn’t there a valid reason for that. The SECP’s version, whenever, the apex regulator chooses to speak to the media- which unfortunately is very rare- is always incorporated in the reports published by the media. But while in the era of free speech, all government functionaries, from top to down, boldly face the media, to access the SECP is just as difficult as for a blind man, in a dark room, to grope for a black cat that isn’t there.