close
Friday June 14, 2024

Curbing extended tenure: SECP imposes term restrictions on CMIIs CEOs, directors

By Israr Khan
August 12, 2023

ISLAMABAD: With the goal of curbing extended tenures of CEOs and independent directors of boards and operations of the Capital Market Infrastructure Institutions (CMIIs), the Securities and Exchange Commission of Pakistan (SECP) has enforced the topmost term restrictions for these executives, including chief executive officers and independent directors engaged with the CMIIs.

“Typically, the CEOs and independent directors secure positions for multiple terms, establishing a firm grip on the operations of these CMIIs and their governing bodies. This dynamic can impact the institutions’ governance and overall efficiency. The implementation of these limitations is aimed at dismantling such dominance,” a senior official of the commission told ‘The News’.

The official said the presence of long-standing CEOs has proven to be a barrier to implementing reforms and modernising institutions, adding that the SECP has introduced a straightforward reform aimed at ushering in new leadership to facilitate this transformation.

These CMIIs encompass the Pakistan Stock Exchange (PSX), National Clearing Company of Pakistan Limited (NCCPL), Central Depository Company (CDC), and Pakistan Mercantile Exchange (PMEX). The tenure limit for CEOs of these entities has been set at a maximum of three terms and the third term will be permissible only under exceptional performance circumstances and is subject to a competitive selection process, the official added.

Furthermore, the commission has also introduced a tenure limit of three terms for independent directors across all CMIIs in Pakistan. Notably, no individual may hold the position of an independent director of the board of the same CMII for more than two terms, the official added.

It is interesting to note that Muhammad Lukman has been serving as CEO of the National Clearing Company of Pakistan Limited (NCCPL) since 2006. This is his sixth term as CEO of the NCCPL.

Similarly, Ejaz Ali Shah has held the position of Managing Director at Pakistan Mercantile Exchange Limited (PMEX) since 2014 and is completing more than three terms.

The CEO of the Pakistan Stock Exchange (PSX) Farrukh H Khan and the CEO of Central Depository Company (CDC) are in their second terms.

After completion of the first three-year term of PSX CEO on February 23, 2023, the BoD of PSX renewed Farrukh H. Khan’s term for the next three years, commencing from February 4, 2023.

Similarly, Badiuddin Akbar was named as Chief Executive Officer of the Central Depository Company of Pakistan (CDC) on December 31, 2018. Following the conclusion of his initial term, he successfully secured a second term in December 2021, which is set to conclude in December 2024.

These tenure restrictions have been introduced to uphold the principles of sound governance and ensure the regulatory efficacy of CMIIs. These institutions play a crucial role in executing vital public policy functions, including providing infrastructure, services, and regulations to facilitate the seamless and efficient operation of capital markets.

These reforms are anticipated to stimulate broader engagement from diverse professionals in the governance of CMIIs and are expected to cultivate a culture of independence, accountability, and objective decision-making, thereby enhancing the safeguarding of public interests.

In a recent meeting with the boards of directors of PSX, NCCPL, CDC, and PMEX, SECP Chairman Akif Saeed emphasised the necessity for CMIIs to uphold the highest standards of corporate governance. He encouraged the formulation of comprehensive human resource policies to enhance transparency.

Saeed also highlighted the significance of collaboration among CMIIs to introduce new derivative products, operationalise Online Only Brokers, enlarge the investor base, develop the debt market, reinforce cybersecurity measures, and launch a centralised gateway portal for customer onboarding and sharing of know your customer (KYC) information across diverse asset classes.

SECP Commissioner Abdul Rehman Warraich underscored the importance of the balanced distribution of responsibility and authority between the board of directors and management. He advocated for a transparent and equitable compensation structure and emphasised heightened focus on core operations and institutional profitability.

He also stressed the necessity of building adequate buffers and reserves in each institution to manage risks arising from their operations and actively undertake sustainable market development endeavors. He highlighted proper succession planning as a means to foster an inclusive workplace culture by identifying and nurturing potential leaders for future challenges.

Both Saeed and Warraich agreed that strengthening the independence of the boards is pivotal to enhancing governance quality. This factor is deemed essential for the enduring viability of all CMIIs in Pakistan. The initiative concludes with these key imperatives in the realm of the nation’s capital market infrastructure.