Shamim Ahmed Khan talks to PAGE
From Shamim Ahmed Rizvi, Islamabad
Jan 31 - Feb 06, 2000
Lot of commendable work has been done by the Securities and Exchange
Commission of Pakistan (SECP) during first year of its operation in 1999 to lay down the
foundations of a sound and effective regulatory system to govern and supervise the capital
markets in Pakistan. The SECP which came into being as a fully autonomous commission
replacing the former corporate law authority, in January 1999 has a subordinate department
of Ministry of Finance taken some bold initiatives and drastic measures to bring the
capital market into an effective discipline not specially to protect the interests and
rights of small investors and minority share holders.
As a result of these measures public confidence in the stock markets
has been restored which has been manifested in many ways. Some are of the view that the
recent upsurge in the stock markets, apart from many other factors, is also because of
this renewed public confidence achieved through constant watch and shrewd and professional
vigilance of SECP authorities on the functioning and performance of listed companies on
the stock exchanges.
Shamim Ahmed Khan, Chairman SECP, a man well known for his integrity,
with the help of his professional team of commissioners, enaged from the private sector,
has been able to form a highly motivated team of hardworking professional of blotless
record. This team has made SECP an organisation awesome for wrongdoers and helping partner
for those who are clean and honest in their dealings.
Humble by nature, Mr. Khan, while talking to this correspondent, on the
achievements of his organisation during the first year of its operation, did not, at all,
sounded boastful. He simply said that it was for the general public specially the
investors in the capital markets to judge our performance. "We however, feel that we
have been able to lay down the foundation of a sound and effective regulatory system for
the capital markets in Pakistan.
As a result of these measures improvement have been noticed by all
concerned in the functioning of financial and securities markets. He said that as a result
of many pronged action initiated by the monitoring and evaluation wing against about 172
companies listed on stock exchange which had not being declaring dividend for the last
many years, 44 have already declared dividend. The cases of the rest are still under
examination and it is hoped that many of them will start paying dividends. Similarly
companies ordinance 1984 has been improved a lot through various amendments to make the
regulatory framework more effective without encroaching on their legitimate freedom of
action. In some cases their working has been facilitated at the same time protecting the
rights of minority share holders. Reform carried out in respect of management of stock
exchanges, making it a mandatory to have a full time professional Managing Director and
outside directors on the Board has made the working of stock markets more transparent and
free from interference of the vested interests. Automation and introduction of central
depository has reduced the chances of any wrong doing by the brokers. Similarly working of
investment companies, asset management companies, Modarbas and Leasing companies has been
regulated through amendments in the existing laws or through new legislative measures.
Talking about the background of SECP, Mr. Shamim Ahmed Khan said that
it was a part of government's desire to regulate financial and securities markets. Such a
development had become necessary after opening up of our markets to foreign and portfolio
investment. At the same it was a general feeling that the existing laws and regulations
were loose leaving many loopholes and therefore had not proved effective enough to protect
the interests of minority share holders and small investors who were completely at the
mercy of big manipulators. It was felt within the country as well as strongly advocated by
the donor agencies that reforms measures were required to effectively regulate and control
the financial and securities markets and a fully autonomous organization was required to
carry out these objectives.
The securities and exchange commission of Pakistan come into being
through an act which has been assigned the following responsibilities as defined in
section 20 (4) of the Act.
a) regulating the issue of securities;
b) regulating the business in Stock Exchange and any other securities
c) supervising and monitoring the activities of any central depository
and stock exchange clearing house;
d) registering and regulating the working of stock brokers, subbrokers,
share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an
issue, underwriters, portfolio managers, investment advisers and such other intermediaries
who may be associated with the securities markets in any manner;
e) proposing regulations for the registration and regulating the
working of collective investment schemes, including unit trust schemes;
f) promoting and regulating self-regulatory organizations including
securities industry and related organisations such as Stock Exchanges and associations of
mutal funds, leasing companies and other NBFIs;
g) prohibiting fraudulent and unfair trade practices relating to
h) promoting investors education and training of intermediaries of
i) conducting investigations in respect of matters related to this Act
and the Ordinance and in particular for the purpose of investigating insider trading in
securities and prosecuting offenders;
j) regulating substantial acquisition of shares and the merger and
take-over of companies;
k) calling for information from and undertaking inspections, conducting
inquiries and audits of the Stock Exchange and intermediaries and self-regulatory
organisations in the securities market;
l) considering and suggesting reforms of the law relating to companies
and bodies corporate, securities markets, including changes to the constitution, rules and
regulations of companies and bodies corporate, Stock Exchanges or clearing houses;
m) encouraging the organized development of the capital market and the
corporate sector in Pakistan.
n) conducting research in respect of any of the matters set out in this
o) performing such functions and exercising such powers of the
Authority, including any powers of the Federal Government delegated to the Authority,
(other than the power to make any rules or regulations) under the provisions of the
Ordinance, and under any other law for the time being in force under which any function or
power has been conferred on the authority including, but not limited to, the functions and
powers set out in the schedule to this Act;
p) performing such functions and exercising such powers (other than the
power to make any rules or regulations) under the Ordinance or any other law for the time
being in force as may, after the commencement of this Act, be delegated to it by the
Federal Government and exercising any power or performing any functions conferred on it by
or under any other law for the time being in force; and
q) proposing regulations in respect of all or any of the aforesaid
matters for the consideration and approval of the Board.
Mr. Khan said that SECP was no more a part of Ministry of Finance and
was functioning as a fully autonomous organization in its operational, administrative and
financial fields. In its operation the SECP has an inbuilt system of accountability. The
SECP is required to submit a report on its activities to the Parliament every year which
can be debated in the house. Secondly there is a policy board (which has 3 Directors from
the private sector besides four representing the government) to constantly watch and
overview the performance of SECP.
Mr. Shamim Ahmed Khan said that while he has assigned the various
functions of SECP to his 3 commissioners, he has kept the cell of public complaints with
himself. All individual complaints received in the SECP office against anybody in the
financial and securities market directly come to him and dealt personally by him through
his staff officer. He said that this practice has made very salutatory effect as he has
seen to it that each grievance is removed within the shortest possible time and taken note
of at the highest level.
A proper record is being maintained of all the complaints, their nature
and redressal measures as is indicated from the following report of the complaint cell.
Nature of complaints Received Resolved Balance
Failure or Delay in Issue of Share
Certificates. 07 06 01
Failure or Delay in Issue of
Duplicate Share Certificates 08 06 02
Failure or Delay in Transfer of
Share Certificates. 48 45 03
Failure or Delay in She Payment
of Dividend. 93 75 18
Failure or Delay in providing
Annual Accounts, etc. 96 73 23
Total: 256 205 47
Per cent: 100% 81% 19%
The cases lying in balance are still unresolved for want of evidence or
for the reason that the concerned companies are not in operation in these days. Cases of
Sunrise Textile Mills, Dadabhoy Leasing and Central Cotton Mills are at different stages
of investigation by the SECP because these companies failed to respond or take appropriate
action to settle the complaints referred to them.
Failure to make payment of dividend, once declared, is a serious
offense. Action is underway against the companies which failed to pay or declare dividend.
Cases of Multipole Industries, Zainib Textile, Ghazi Fabrics, Lucky Cement, Paramount
Spinning and Dadabhoy Leasing are at different stages of investigation at the moment. Some
of the companies, which did not respond to the queries of shareholders, were found guilty
of not fulfilling other statutory obligations like holding of AGMs, declaration of
dividend, failing of Form-A, etc. These companies include, Tawakkal Modaraba, Tawakkal
Garments, Tawakkal Limited, Baluchistan Foundry and Tri-Star Energy Limited. SECP has
initiated legal proceedings against these companies for violation of provisions of the
Investors and shareholders from rural and far-flung cities have also
been approaching SECP for guidance and assistance to overcome the difficulties confronted
by them in dealing with the management of companies and the stock brokers. Dispersal of
locality of investors is a healthy sign as it points towards the fact that the country
have a good number of potential investors, who are ready to save and invest in the capital
market. All we need is to ensure that their interest is safeguarded as envisaged in the
relevant laws. Their confidence can be boosted by ensuring that their investments would
not be left in un-safe hands and that companies would declare and pay dividends to them
against their investments.
Some of the shareholders also offered useful proposals aimed at
reforming the present legal and operational framework. SECP intends to bring out a
brochure to inform the shareholders about their rights and obligations on the basis of
relevant legal provisions and the feedback received from the shareholders. The brochure,
coupled with other measures, would be helpful in reducing the number of complaints and
promoting capital formation through investment in securities.
Mr. Shamim Ahmed Khan has resigned from his position as the founding
Chairman of Securities & Exchange Commission of Pakistan (SECP) due to "personal
The Ministry of Finance has accepted his resignation but requested him
to continue working as Chairman till "a suitable successor becomes available".
Khalid Mirza who is currently the Resident Representative in Thailand of International
Finance Corporation, has been named as the new Chairman of SECP.
This interview with Shamim Ahmed Khan was recorded on January 20
(Thursday) in which he did not make any hint about his resignation. When contacted on
Tuesday January 26, Mr. Khan confirmed that he had resigned purely for personal reasons.
Mr. Khan began his career in the Investment Corporation of Pakistan.
Even while working with IFC, he was closely associated with the developments in capital
market in Pakistan. For example, he helped set up the Central Depository Company, the
first investment bank and the first leasing company in Pakistan. He was also consulted in
the formulation of securities reforms.
Shamim Ahmed Khan, with his voluntary resignation, was associated with
the development and regulation of capital market as well as its liberalization for almost
10 years, first as Member of Corporate Law Authority, then its Chairman. He played a key
role in the process of establishing the Securities & Exchange Commission as an
autonomous regulatory body and the SECP Policy Board, formulation of the SECP Act enacted
by the Parliament to replace CLA with SECP and far-reaching amendments in the Companies
Ordinance, 1984 with a view to improve monitoring of the affairs of the companies with a
view to making them to accountable.