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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 markets;

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 securities markets;

h) promoting investors education and training of intermediaries of securities markets;

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 sub-section;

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 ordinance.

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 reasons".

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.