KARACHI, Aug 15: The Karachi Stock Exchange has called an extraordinary meeting of the Board of Directors on Monday to deliberate changes ordered by the corporate regulator on the composition of bourses’ boards, which effectively ends an era of stock brokers’ rule over the exchanges.

Jolted by what he thought was an unexpected blow, the chairman KSE, Salim Chamdia told Dawn that he would not want to comment on the matter and let the board discuss the issue on Monday, August 19.

The Securities and Exchange Commission of Pakistan (SECP) had ordered on Tuesday that beginning next year, the total number of directors on each of the three boards of stock exchanges in Pakistan would be slashed to a half from 18 to 9; that instead of ten, stock brokers would be entitled to nominate four members on the board and the strength of non-member directors would be reduced from seven to four.

But the measure that would sound the death kneel to broker dominance on the exchanges, is the directive that instead of the general body electing the chairman of the board from the brokers’ fraternity, the chairman would be selected by the members of the board from amongst the non-member directors.

The post of vice-chairman—also held by a stock broker— is to be abolished. An independent managing director is already a non-member, appointed by the board with the approval of the SECP.

A big player, who asked not to be named, said that an informal meeting of the senior members of the KSE was held on Thursday. He said that no one knew why the regulator had all of a sudden decided to “nationalise” the stock exchanges.

He recalled that after earlier clashes between the broker community and the SECP in May 2000—which had sent the market in a tailspin— things had settled down to a comfortable relationship, where the member and non-member directors on the board were working in complete harmony.

He claimed that the Regulator had even poured praises over the working of the KSE board at several recent meetings of the coordination committee.

Earlier this month, SECP had asked the stock exchange to present its proposal for going ahead with the demutualisation of the stock exchanges—a system that would separate the ownership from working of the stock exchanges. KSE chairman said that the exchange was already working on that proposal.

The market players and investors watched with batted breath the developing scenario at the KSE on Thursday, when the index shed five points, after a 24 points gain in the previous two sessions. Many thought it might be the most challenging moment for the stock brokers as they would try to hold on to their five-decade dominance over the stock exchange by the skin of their teeth.

But the chief corporate regulator, Khalid M.Mirza, is known to have pursued all his objectives with dogged determination. Even facing demonstrating crowd of brokers, Mirza has continued to push along with his agenda of enforcing self-regulatory role of the Exchange.

Some of the changes that have been brought about by the regulator in spite of strong resistance and displeasure of the brokerage fraternity, include installation of an MD independent of members, nomination of outside directors on the board; revision of capital adequacy regulations; change in capital balance; implementation of brokerage registration rules; change to T+3 system of trading; increase in transaction fee and separation of the role of chairman KSE and that of CDC. More recently, the regulator got the stock exchanges to make the ‘Code of corporate governance’ a part of listing regulations. Given such a success record, Mirza is not likely to relent on his latest directive as he continues to argue that it is the responsibility of the Regulator not only to protect the interests of the members, but also the issuers of capital and the investors.

But in the arguments from both sides, there is a complete recipe for a new tussle between the SECP and the KSE. Where will that leave the market and investor confidence, needs to be seen.