As per directives of the Securities and Exchange Commission of Pakistan (SECP), Pakistan Mercantile Exchange Limited (PMEX) has started reconstitution of the PMEX Board under which the number of board members would be reduced from existing 13 to 10.
Sources told Business Recorder here on Friday that the process of the reconstitution of the PMEX Board has already been started pursuant to the directions of the commission. The SECP had advised the PMEX through a letter dated August 2, 2012 to reconstitute its Board in line with the board composition approved for the stock exchanges post-demutualisation. Subsequent to its board meeting, PMEX has sought concurrence of the SECP on the proposal approved by its Board pertaining to changing the composition of elected and independent directors in line with the SECP's guidance.
The commission had asked the PMEX to reconstitute its Board with immediate effect and the process has been started in this regard. The PMEX Board of Directors structure revealed that Ayesha Aziz and Ruhail Mohammad have given their resignation as per decision of the board meeting dated September 11, 2012.
The other independent directors including Aizaz Sarfraz, Kamran Y. Mirza, Muhammad Hanif and Rizwan Ahmed Kehar are also expected to give their resignation as per decision of the PMEX board meeting on September 11, 2012. Whereas the remaining six are the elected share holder directors of PMEX - which included Abdul Majeed nominee of KSE, Shahid Mehmood nominee of LSE, Mian Ayaz Afzal nominee of ISE and the three nominee of National Bank are Amir Shehzad, Rehmat Ali Hasnie and Syed Hasan Irtiza Kazmi.
The final decision for the reconstitution of the PMEX board was made in its meeting held on September 11, 2012. In its meeting held on September 11, 2012 PMEX has considered the matters pertaining to the reconstitution of the PMEX Board of Directors. The management presented its proposal to reduce the size of the PMEX Board. The SECP has directed the PMEX that in future none of the independent directors would be nominated by its board. It has been decided that all three independent directors would be nominated and appointed by the SECP. However, shareholders representative with or without trading rights have been reduced from six to three and shareholders representatives with no trading rights would be three and one Managing Director.
The meeting also approved the proposal and advised management to seek agreement of the SECP so that the procedure for amendment in the Articles of the PMEX to incorporate the following may be initiated: Firstly, not more than one-third of the directors are trading rights entitlement holders/brokers or persons connected with these. Secondly, one-third is representative of shareholders other than trading rights entitlement holders/brokers or persons connected with these and one-third are independent directors, nominated and appointed by the SECP.
The whole process of the reconstitution of the PMEX Board was started in May 2012. On May 30, 2012, the SECP had advised the PMEX to reconstitute its Board in such a manner that the independent directors nominated and appointed by the SECP constitute at least one-third of the Board size. On June 14, 2012, PMEX conveyed that the Board has agreed to the restructuring with a view to reducing its overall size and changing the composition of the elected and independent directors. However, the final decision would be taken subsequent to induction of one or more new shareholders. On June 26, 2012, PMEX was advised that the process of reconstituting its Board should begin on priority without linking it with the induction of prospective shareholders. On July 4, 2012, PMEX sought guidance of the commission in the matter of independent directors with reference to the procedure stipulated in the Companies Ordinance 1984 and the Demutualization Act 2012. The PMEX was advised on August 2, 2012 to reconstitute its board as per board composition approved for the stock exchanges post-demutualisation.
Background of the issue revealed that subsequent to the PMEX further issue of capital and right issue, the cumulative ownership of the stock exchanges in PMEX equity has been reduced to 43.06% as opposed to the previous 81.82%. The three stock exchanges had also transferred custody of their shares to be off-loaded to PMEX-approved custodian which were later returned by PMEX to the stock exchanges with a view that the broad-basing of its ownership structure had been achieved.
In 2007, the SECP had advised PMEX to ensure adequate representation of independent directors on PMEX Board of Directors. This instruction was in line with the then-envisaged need for broad-basing. For the same purpose, it had been directed that six independent directors approved by the SECP be appointed on the PMEX Board in addition to the six elected directors to ensure a fair balance.
Since the said broad-basing has largely been achieved, it is desirable that the size of the Board is curtailed to a reasonable number of directors to ensure a robust and efficient Board. Further, the Board should he reconstituted in a manner that the independent directors, nominated and appointed by the SECP constitute at least one-third of the Board size so as to ensure independence, transparency and integrity in the affairs of the exchange.
Accordingly, the SECP had requested the PMEX to review the constitution of its Board of Directors keeping in view the SECP advice and discussions held with it earlier on the matter. This would also necessitate carrying out requisite amendments to PMEX's regulatory framework and its Articles of Association.