ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has approved amendments in the Securities Exchange (Licensing and Operation) Regulations 2016 to mandate one-third of the board as independent directors at Pakistan Stock Exchange (PSX).
The number of independent directors at PSX’s board remains a fundamental issue. The Stock Exchanges Licensing Regulations states that the board of directors of a securities exchange shall have independent directors, shareholder directors, and a CEO, but a number of brokers have a point of view that government is appointing their own members, currently; the strength of independent directors is 50 per cent at PSX Board which is inadequate.
Furthermore, there is a restriction in the regulations that the board of directors of a securities exchange shall have independent directors not less than the shareholder directors. This requirement of the number of independent directors is being criticised as discriminatory and unjustified by the business community.
Under the Stock Exchange Corporatisation, Demutualisation and Integration Act, 2012, the sale of a strategic stake to Chinese consortium was completed whereby 40 per cent of paid-up capital was transferred to the five-member consortium, which included three Chinese exchanges and two local financial institutions in 2016. Subsequently, in accordance with the Demutualisation Act and Securities Exchanges Licensing and Operations Regulations, 2016, the composition of the PSX’s Board of Directors was changed by replacing the six SECP’s nominated directors with four nominees of Chinese consortium and two independent directors. Afterward, according to the Demutualisation Act, the process of the sale of remaining 20 per cent shares of PSX by way of offer for sale and the public subscription was completed and the PSX was self-listed on June 29, 2017.
The Stock Exchanges Licensing and Operations Regulations, 2016 required reconstitution of PSX board within six months from the date of sale of 40 per cent of shares of PSX and the SECP’s nominee directors were to be considered independent till the sale of the remaining 20 per cent of shares. Moreover, Articles of Association of PSX also provides that on the sale of shares to the general public, the nominees of the SECP shall be replaced by directors representing the interests of the general public. This change was to happen upon directive by the SECP in an election of directors held as per the requirements of the repealed Companies Ordinance, 1984, now the Companies Act, 2017. The PSX, however, did not hold elections post-IPO.
SECP amendment in the regulation 9(2) of the regulations is in line with the Code of Corporate Governance Regulations, 2017 and aimed at providing the PSX stakeholders meaningful presence on the board of PSX. The SECP has recently directed the PSX to fix the number of directors and hold elections of shareholder directors in accordance with requirements of the Companies Act by February 28.
Yaseen Lakhani, while talking to Pakistan Today stated that currently there are four elected and six government nominee board members which the SECP considers independent but the reality is against this.
He further stated that no regulator in the world appoints board members but our regulator is doing so. PSX board meeting is due to be held on January 9, 2018, in which the board will decide what would be the strength of independent, elected and shareholder directors.
The former chairman Zafar Hejazi and commissioner Akif Saeed ruined the market, he added. Government appoints their own persons in key positions on the board so how can you imagine that they will take care of the market, Lakhani lamented.
