ISLAMABAD, July 9: Securities and Exchange Commission of Pakistan has directed the Lahore Stock Exchange to restore immediately the service charges on trade abolished by the latter last February.
The commission, according to a press release here on Tuesday, also ordered the LSE to ensure that its members are making contribution towards the Members Contribution Fund (MCF) at the rate of Rs5 per Rs100,000, which was earlier reduced by it to Rs3.75 per Rs100,000.
The decision was taken by the regulatory authority after hearing the arguments and explanations by the members of LSE Board of Directors and their lawyers.
Having concluded that the Board had failed to present any plausible defence or justification in support of their decision, the commission directed the LSE to report compliance with its instructions not later than July 12, 2002.
Apart from the fact that the abolition of service charges deprived the exchange of 25 per cent of its total revenue, the decision also adversely affected the Investor Protection Fund (IPF) as a result of reduction in contributions to the MCF 15 per cent of which has to be contributed to IPF.
LSE, the commission observed, had already been under financial strain after the May 2000 crisis when it had utilized Rs194 million from its resources to ensure the settlement of clearing house operations. This amount has not been repaid by the defaulting members.
As of June 30, MCF and IPF had balances of Rs111.129 million and Rs16.65 million, respectively. Furthermore, LSE had an unfunded exposure of approximately Rs120 million against cash reserves of Rs20 million and potential income tax and wealth tax liabilities of approximately Rs72.477 million and Rs19.7 million, respectively.
A perusal of the record reveals that, the press release goes on to remark, the LSE Board of Directors took the impugned decisions by majority vote of directors who stood to benefit thereby. The dissenting non-member directors had, however, lodged a protest against the decision. The board subsequently ignored the managing director’s request for a reconsideration of the matter in a special meeting.
The LSE had abolished service charges in June 2000 in expectation of increase in turnover. The decision had, however, failed to bring about any improvement.
Moreover, the trading volumes at LSE for the past few years preclude the possibility of any windfall that would compensate for the substantial sum of money forfeited by the board by its decision to abolish the service charges.