The tussle between the Securities Exchange Commission of Pakistan (SECP) and the Karachi Stock Exchange (KSE) is more about power than progress. In the sitting 18-member board of directors, the stock brokers hold the majority of ten directors and a chairman.

The ‘independent’ managing director appointed with the consent of the Regulator, held out great promise of holding aloft his high office as he started out with all the huff and puff. But he was soon made to cow down and the poor fellow’s role barely stretched beyond passing on the trophies to the chief guest at KSE’s Top Companies Award ceremonies. On Friday, MD Noman Ahmad finally threw in the towel. The seven non-member directors on the board are not known to have ever issued a single statement, which could hurt the feelings of their broker brothers on the board.

Occupied more thoroughly with their own primary occupations, they do the stock market great service by even taking time out to attend board meetings. What progress have they or the MD brought to the market? The KSE went through the COT crisis earlier this year—which many believe was perpetrated by the brokers and also resolved by the brokers. It is clear, then, to understand, why the Regulator would be embarrassed if the Asian Development Bank which footed the bill for capital market reforms, were to ask him: “Where are the reforms?”.

In desperation, therefore, The SECP has attempted to throw out the stock brokers and wrest control of the bourses. The Regulator has been goading the stock exchanges for demutalisation- a system that separates the ownership from management. And the KSE chairman Salim Chamdia said his bourse was working on the proposal. But the directive that came from Islamabad last Tuesday, had the impact of sending the stock brokers in a state of frenzy.

The SECP ordered 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 looked to sound death knell to the 50-year-old era of stock brokers’ dominance on the exchanges, was the directive that instead of the general body of brokers 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— was to be abolished.

To many independent observers, the move seemed to mark the shift from one extreme to the other. Given the dismal performance record of non-member directors and the ‘independent’ managing director, the attempt by the SECP to install outside directors in majority and a non-member chairman, meant to many that Islamabad would be calling all the shots. Some of the big brokers, who were immediately up in arms, said that it was an attempt by the government to “nationalise” the stock exchanges.

“A perfectly private institution would fall in the lap of the government”, said one top broker, adding, “See what such an act has done to ICP?”. He contended that if the proposed changes were allowed to take place, the Government in power would nominate corrupt politicians as members of the board and the chairman of the KSE, just as they nominate top managements at nationalised banks, steel mill, KESC, PNSC and the host of government corporations.

Khalid A.Mirza, chairman, SECP, disagreed. He argued that he wanted to make the stock exchanges national institutions, which currently had come to symbolise as places “of the brokers, for the brokers and by the brokers”. As the Regulator, he said, it was his responsibility to take care of the interests of all stake-holders in the capital market: investors, issuers of capital, the general public and market “intermediaries”—meaning stock brokers.

And, he emphasised that he would not allow himself to be held hostage by a group of “intermediaries”. Even his sworn enemies would admit that from the first chief of Corporate Law Authority— the burly Irtiza Husain in early eighties to the last of chief of SECP— the docile Shamim Ahmed Khan, the office of corporate regulator has not seen a tougher man than Khalid A.Mirza. Through his characteristic carrot and stick approach, Mirza has pushed through many a reforms in various sectors.

Weaving his way through angry, slogan chanting crowds of brokers, he has visited the KSE and managed to install outside directors on the board and introduce T+3 system of trading among other ‘unsavoury’ things that he has done for the brokers. And the Regulator still has many levers to make the stock brokers fall in line: Brokers have to submit applications for renewal of registration under Brokers and Agents Rules, 2001, by August 31.

The last time certificates of registration were issued by the SECP on November 1, 2001. A disobedient broker may loose his precious registration on so many grounds. But what if he has done nothing unlawful? Well, has anyone succeeded against the traffic constable, when he argues from the side window? Then there are brokers who have mutual funds and other businesses that fall within the regulatory precinct of the SECP. And a vast number of brokers also have skeletons in their cupboards.

Because of fear, expectations of favour and even disenchantment at the ways of some of the top players, the brokers stood split this time around. Some of the big brokers— including, surprisingly, the one believed to be the most powerful among the clan— was understood to have shifted to the side of the Regulator.

But in equally heavier number, including some of the past chiefs of the bourse, were defiant. The Board of Directors of the Exchange—or majority of members on the board— issued a statement saying that the directive had been issued by the SECP without “any justification and prior consultation”. There was talk of taking the battle to the courts. A committee of four was constituted to hold talks with the SECP for “adjustments”. Mirza said he was willing to listen.

At the weekend it was rumoured that solutions had been found. But neither party had issued a public statement to that effect. Since this is a scuffle for power and absolute control, there could not be easy solutions. The last time that SECP-broker relationship soured into a serious conflict, Finance Minister Shaukat Aziz had to intervene. The two parties have not been summoned yet. With elections drawing near, the minister has perhaps more important things on his mind, than the insignificant $ 7-billion stock market.