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ii. ORGANIZATION OF SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN
The establishment of Securities
and Exchange Commission of Pakistan with effect from 1st January, 1999 is an important
milestone in the evolution of the regulatory framework for the capital market in
Pakistan. Since 1981, the capital market and the corporate sector were being
regulated by the Corporate Law Authority, a department of the Ministry of Finance which
had been set up to administer all the corporate laws in the country. The status of
the Authority as a department of the Government circumscribed its effectiveness as it
lacked administrative and financial autonomy to recruit professionally qualified staff and
to develop necessary infrastructures. The rapid expansion of the market during early
1990s highlighted the need for establishment of an independent regulatory body with full
operational and administrative autonomy. The process of restructuring the Authority
into an autonomous Commission was started in 1997 under the Capital Market Development
Programme of Asian Development Bank. A number of models of regulatory bodies, set up
in the recent past in other countries of the region, were studied and after careful
consideration, it was decided that:
q the proposed Commission should be named Securities and Exchange Commission of
Pakistan and it should enjoy full operational, administrative and financial autonomy;
q the regulatory scope of the Commission should cover securities market,
administration of company law and regulation of some non-banking financial
companies, in view of the strong inter-linkages among the three areas; and
q the Commission should associate outside professionals and key policy makers with
its policy formulation process.
The policy decisions regarding the constitution and the structure of the Commission were
incorporated in the Securities and Exchange Commission of Pakistan Act, 1997 (the Act),
which was passed by Parliament and promulgated in December 1997.
On 1st January, 1999. Mr. Shamim Ahmad Khan, the then Chairman, Corporate Law
Authority, was appointed as the first chairman of the Commission. Four commissioners
were also appointed out of whom, the following three joined the Commission:
q Mr. Abdul Rehman Qureshi
q Mr. Tariq Iqbal Khan
q Mr. Zafar-ul-Haq Hijazi
Subsequent to the resignation of Mr. Shamim Ahmad Khan in January 2000, Mr. Khalid A.
Mirza (a senior official of the International Finance Corporation (IFC), posted as Chief
of IFC’s Regional Mission in Bangkok, Thailand) was appointed as Chairman of
the Commission. He took over on 31st March, 2000.
Although the Commission became operational on 1st January, 1999, it could not enjoy
financial autonomy during the remaining part of the financial year. Till 30th June,
1999, the Commission could only use the budgetary allocations which had been made for the
Authority in the budget of the Federal Government for the fiscal year 1998-99.
Transformation of a government department into an autonomous body established under a
statute required considerable groundwork. During the calendar year 1999, foundations of
the new regulatory body were laid through a number of measures:
q A Corporate Plan was prepared with the assistance of ADB consultants which
covered organisational structure, reporting relationships and functional profiles;
information system strategy; plans to up-grade facilities like premises, equipment etc;
skills development and financial plans.
q Based on the Corporate Plan, the work of the Commission was distributed among
its six Divisions, powers of the Commission were delegated to the individual Commissioners
and Appellate Benches as envisaged in the Act were constituted.
q A Service Manual determining the terms and conditions of the Commission’s
employees was prepared.
q Accounting and financial procedures were prepared and put into operation.
q Steps were taken to generate public awareness about the establishment
of the Commission through seminars, the media, and circulars. A website
(http//www.secp.gov.pk) was established that disseminates information regarding all
important developments and policy decisions of the Commission.
q New office premises at Islamabad (NIC Building, Blue Area) and additional
space for the regional office at Karachi (5th Floor of SLIC Building No.2, Wallace Road)
were arranged.
SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN ACT, 1997
The Commission is governed by the Securities and Exchange Commission of Pakistan Act, 1997 which encompasses the constitution of the Commission, appointment and terms and conditions of the Chairman and Commissioners, functions and powers of the Commission and financial arrangements. The main provisions of the Act are given below:
SUMMARY OF
MAIN PROVISIONS OF
SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN ACT, 1997
The Commission would be a body
corporate and a legal person.
q The Commission would comprise of such number of commissioners including a
chairman as may be fixed by the Federal Government but minimum and maximum number of
commissioners shall be five and seven respectively. The tenure of the chairman will
be three years while that of the commissioners shall be two or three years to be
determined through random ballot to facilitate continuity of the Commission. The
incumbents would be eligible for a second term.
q The Commission would administer the following laws:
§ The Securities and Exchange Ordinance, 1969;
§ The Companies Ordinance, 1984;
§ The Modaraba Companies and Modaraba (Floatation and Control) Ordinance,
1980;
§ The Insurance Act, 1938 (since replaced by the Insurance Ordinance, 2000);
§ The Companies Legal Advisers Act, 1974; and
§ The Securities and Exchange Commission of Pakistan Act, 1997.
All the powers of the Authority and the Federal Government (except power for rules making)
under the above laws are exercised by the Commission.
q The Government can assign administration of any other law to the Commission.
q Terms and conditions of the employees shall be determined by the Commission
with the approval of the Policy Board.
q The main functions of the Commission in respect of securities market are:
§ regulation of securities market;
§ regulation and supervision of the activities of capital market institutions
like central depository and stock exchanges clearing houses;
§ registering and regulating work of stock brokers, sub-brokers, trustees,
bankers to the issue, registrars to the issue, under-writers, portfolio managers and
investment advisers;
§ regulation of collective investment schemes (Unit Trusts and Mutual Funds);
and
§ regulating substantial acquisition of shares and mergers and takeover of
companies.
q A Securities and Exchange Policy Board shall be constituted, which shall
consist of seven members out of whom three would be from private sector while four would
be ex-officio namely; Secretary, Finance Division, Secretary, Law and Justice Division,
Chairman of the Commission and a Deputy Governor of the State Bank. The tenure of
the private sector members of the Policy Board shall be four years.
The main functions of the Board are:
§ to advise the Federal Government on all matters relating to securities
market, regulation of companies and corporate sector and protection of interest of
investors, measures to encourage self regulation by the stock exchanges and non bank
financial institutions and measures to promote securities market;
§ to approve the budget of the Commission; and
§ to oversee the performance of the Commission to the extent that purposes
of the Act are achieved;
q The Commission shall administer and control a ‘Fund’ consisting of
all sums received from Federal Government, grants and sums raised by the Commission and
fees, penalties and other charges levied by the Commission.
q The ‘Fund’ shall be expended for the purposes of meeting lawful
expenditure of the Commission.
q The Commission is required to prepare an Annual Report on the activities of
the Commission to be released to the public and to be submitted to the Federal Government
and the Parliament.
q The accounts of the Commission are to be audited by two auditors; one to be
appointed by the Federal Government and the other by the Commission.
q The Commission has been vested with sufficient powers to carry out
investigation and inspection and call for any information relevant to its scope of work.
q An Appellate Bench is to be constituted by the Commission to hear appeals in
respect of an order passed by a Commissioner.
The decision of the Government to assign regulation of the insurance industry to the
Commission was taken after its establishment.
ADMINISTRATIVE STRUCTURE OF THE COMMISSION
In accordance with the approved
Corporate Plan, the Commission has been organized into the following six Divisions:-
q Securities Division;
q Enforcement Division;
q Specialized Companies Division;
q Company Law Administration Division;
q Insurance Division; and
q Support Services Division
FUNCTIONAL PROFILE OF THE DIVISIONS
q Division is responsible for all
activities related to the securities market functions including licensing and
coordination, regulation of secondary market, public offerings and market surveillance and
of market intermediaries.
q Enforcement and Monitoring Division is responsible for review of accounts of
listed companies, investigation and compliance of relevant laws and regulations by the
management and prosecution (except in relation to specialized companies, including
insurance companies).
q Specialized Companies Division is responsible for regulation of Mutual Funds,
Modaraba companies, Leasing and other specialized companies (except insurance companies).
Its functions include licensing, regulatory compliance and enforcement of all applicable
laws
q Company Law Administration Division is charged with the responsibility of
incorporating all companies and enforcing Companies Ordinance and other statutes and
regulations in all (listed/unlisted/private) companies. The Division is also
responsible for supervision of the field offices in various cities working as company
registration offices.
q Insurance Division is responsible for regulating the insurance sector.
It would exercise powers of the Commission under the law, and will administer the law of
insurance, covering licensing and supervision of insurers and other regulated entities
under that law.
q Support Services Division is responsible for provision of efficient support
services to the entire Commission. It would also attend to legal matters pertaining
to various statutes, managing the funds and maintaining accounts, development and
administration of human resources and introducing automation systems through information
technology. It is envisaged that the regional offices shall have their own dedicated
support services units, which would implement the policies and procedures prescribed by
the Support Services Division at the head office.
Each of the above six Divisions have been divided into Wings for administrative purposes,
which are mentioned below:
q Securities Division
§ Licensing and Coordination;
§ Secondary Market Regulation;
§ Public Offering; and
§ Surveillance
q Enforcement Division
§ Accounts
§ Investigation
§ Compliance and Prosecution
q Specialized Companies Division
§ Modaraba Companies and Modarabas
§ Leasing Companies
§ All Other Specialized Companies and Mutual Funds.
q Company Law Administration Division
§ Coordination and Liaisoning
§ Regulation and Compliance
§ Enforcement, Investigation and Prosecution
§ Licensing, Approvals and Appeals
q Insurance Division
§ Actuarial Services
§ Life Insurance Prudential Supervision
§ Non-life Insurance Prudential Supervision
§ Market Conduct Supervision
§ Enforcement and Prosecution
q Support Services Division
§ Finance and Accounts
§ Administration
§ Legal
§ Human Resource
§ Information Technology.
The Commission is a collegiate body having collective responsibility. Chairman of the
Commission is its Chief Executive Officer and is responsible for the working of the whole
Commission while the commissioners would assist him in over-all supervision. Each
Executive Director while heading a Division, or one or more Wings of a Division, would be
directly responsible to the Commission. The Wings have further been divided
function-wise into Sections to be headed by a Joint Director accountable to the respective
Director.
SECURITIES AND EXCHANGE POLICY BOARD
While ensuring full autonomy of
the Commission, the Act provides for establishment of a Securities and Exchange Policy
Board (the Policy Board). The main objective of the Policy Board is to provide
guidance to the Commission in all matters relating to its functions and to formulate
policies in consultation with the Commission. The Policy Board is also responsible
for advising the Government on any matter falling within the purview of the Act and other
Corporate Laws; and also to express its opinion on policy matters referred to by the
Government or the Commission.
The Act provides that the Federal Government shall appoint a Policy Board consisting of
seven members out of whom four would be ex-officio while three would represent the private
sector. The ex-officio members are: (i) Secretary, Finance Division; (ii) Secretary,
Law and Justice Division; (iii) Chairman of the Commission; and (iv) a Deputy Governor of
the State Bank of Pakistan. Following a recent amendment in the Act, the size of the
Policy Board has been increased to nine members, including the Secretary, Commerce
Division, as another ex-officio member. The term of an ex-officio member is the
period of incumbency of his/her official position whereas the term of a private sector
member is for a fixed period of four years. The first Policy Board was constituted
as under:
1.Mr. M. Khalil Mian
(Chairman)
2. Mr. Bashir Ahmed
3. Mr. Khurshid Marker
4. Ex-officio Secretary, Finance Division;
5. Ex-officio Secretary, Law Division;
6. Ex-officio Chairman of the Commission; and
7. Mr. Mukhtar Nabi Qureshi, Deputy Governor of the State Bank of Pakistan.
On the resignation of Mr. M. Khalil Mian, the Government appointed Mr. Khalid A. Mirza,
Chairman of the Commission as Chairman of the Policy Board on 29th June 2000.
Since Commission is financially
autonomous, a Fund has been established for meeting the financial requirements of the
Commission. The Fund is administered and controlled by the Commission and consists of the
following:-
q such sums as the Federal Government may grant from time to time;
q grants of money and sums borrowed or raised by the Commission for the
purposes of meeting any of its obligations or discharging any of its duties; and
q taxes, fees, penalties or other charges levied under this Act, the Ordinance,
the Securities and Exchange Ordinance, 1969 (XVII of 1969), the Modaraba Companies and
Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980), Law of Insurance and
under any other law that is for the time being administered by the Commission.
All expenditure of the Commission, including the following items, is charged to the Fund:-
q Any expenditure lawfully incurred by the Commission, including the
remuneration of Commissioners and employees, including provident fund contributions,
superannuating allowances or gratuities and legal fees and cost and other fees and costs.
q Any other expenses, costs or expenditure properly incurred or accepted by the
Commission in the performance of its functions or the exercise of its powers under this
Act.
q Purchasing or hiring equipment, machinery and any other materials, acquiring
land and erecting buildings, and carrying out any other work and undertakings in the
performance of its functions or the exercise of its powers under this Act.
q Repaying any financial accommodation received or moneys borrowed under this
Act and the profit, return, mark-up or interest due thereon (howsoever called).
q Generally, any expenses for carrying into effect the provisions of this Act.
The Commission is required to prepare and submit its budget to the Policy Board within
ninety days of its establishment and thereafter not later than thirty days before the
expiry of each financial year. The Commission is required to keep proper accounts and at
the end of each financial year prepare a statement of accounts which shall include a
balance sheet and an account of income and expenditure. The Commission is also
required to get its accounts audited by auditors appointed with the approval of the
Federal Government. The Federal Government may if it deems fit, also require the
accounts of the Commission for any financial year audited by the Auditor General of
Pakistan. The Policy Board is required to send, within one hundred and twenty days
after the end of each financial year, together with the annual report of the Commission, a
copy of the statement of accounts of the Commission certified by the auditors and a copy
of the auditors' report to the Federal Government which shall cause them to be published
in the official Gazette and submit to Parliament within two months of their receipt.
The accounts of the Commission are being jointly audited by two firms of Chartered
Accountants and would be submitted to the Government within the stipulated period.
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