KARACHI, Dec 29: Chairman Karachi Stock Exchange (KSE) Mohammad Yasin Lakhani used his casting vote after the directors on the KSE Board stood split right through the centre on whether or not to comply with the directives of the Securities & Exchange Commission of Pakistan (SECP) regarding the installation of a non-member director as the chairman of the bourse.

At the Board meeting held on Thursday, four non-broker directors nominated by the SECP together with the managing director voted for submission to the order, while the five broker directors, stoically stood against. The chairman’s casting vote tilted the balance in favour of the members.

When temperatures cooled down a bit, both parties agreed that instead of taking up the cudgels, a better option would be to talk. According to sources privy to the meeting, the SECP nominated members said they would seek guidance from SECP chairman Dr Tariq Hassan, and inform the Board if the decision could be deferred and negotiations could be held on the directive. The final hour for conveyance of such decision was set at 4 pm on Friday.

The fire was flamed earlier on Wednesday, when the apex regulator moved after the KSE and Lahore Stock Exchange (LSE) ignored its Dec 9 directive requiring them to make amendments in their articles of association so as to facilitate a non-member to become the chairman of the bourses. Only Islamabad Stock Exchange had complied. The SECP issued an order on Wednesday, announcing: “The regulations so made by the SECP are deemed to have been made by the exchanges and take effect accordingly.”

The SECP contends that it has framed the regulations in exercise of its powers under section 34(5) of the Securities and Exchange Ordinance, 1969 and the aim was to “limit the possibility of conflict of interest in the board”. The bourses obviously do not subscribe to that view. The members lament that to oblige the regulator in following its directive, the stock exchange (front line regulator) would be stripped of all its powers. Currently, four directors representing the SECP sit on the board; MD is also approved by the regulator and so owes his allegiance to the authority; all major decisions taken by the bourses are subject to approval of the regulator. The brokers fear that an SECP nominated chairman, who would have the casting vote in case of a tie, would be the last nail in the coffin of the bourses’ independence.

Sources said that in case of a stalemate by 4 pm on Friday, an Extra Ordinary General Meeting of the KSE members that has been called for the same day later in the evening, would exercise their option of either accepting or rejecting the SECP directive. For a resolution to be carried through, a majority of three-fourth of the total members present at the meeting would be required. That most of the brokers would cast vote in their own favour is almost a settled issue. It was learnt that the brokers had done their homework before the Board meeting on Thursday. In order to fill up two vacancies that had arisen among member directors the members sent in two others as substitutes.

But what if the SECP decides to stick to its guns? Pushing the obvious path of confrontation aside, a few players have suggested a third option: To concede to the regulator’s demand of electing a non-member as the chairman of the Board, but at the same time increasing the number of directors on the board to 11, by addition of another broker director to the board. That would raise the number of member directors to six and non-member including the MD to five. The chairman in that case would lose the power of his casting vote? But then will the regulator ask for increase in number of non-member directors to five instead of four? That would start a vicious circle of comedy of errors.

Things still are in murky waters. It is understood that most members might embrace the SECP order regarding non-member as chairman after the demutualization of stock exchanges, which currently tops the regulator’s agenda.

The communication gap between Islamabad-based regulator and the KSE is being admitted by all as the major hurdle in the way of settlement of disputes. SECP chairman, who is quick to blame the electronic and print media for toeing the line of ‘financial intermediaries’ could not be located for his views on Thursday. The man who spoke from the other side of the line in SECP office in Islamabad informed that the regulator was on leave until Monday, and mercifully added that it would be futile to keep trying to reach him on his cell phone.