1992 PLP 1213 (CLC)

(ix) Plans of the promoters, if any, to encourage persons of the region to work as stock brokers. (x) Plans, if any, to maintain ratio between active and inactive members of the proposed stock exchange.

15. The main features of the proposals regarding the establishment of the stock exchange received from four applicants are mentioned below:‑ (i) Syed Sarmad Maasood AI‑Hussainy and Associates. (a) Ways and means to attract companies for listing and providing facilities etc. (i) Establish computer network. (ii) Publish ready board quotations. (iii) Provide dedicated line, telex service, Fax. (iv) Companies listed on other exchanges to. be exempted from initial listing fee. (v) Organise seminars and lectures. (vi) Publish hand‑book on investment. (b) Information relating to the project (projections): (i) Initial capital cost Rs.497,310 (ii) Annual income Rs.1,205,000. (iii) Recurring expenditure Rs.1,138,000 (iv) Membership fee Rs.100,000 ' (v) Construct own building (ii) Amanullah Khan and Associates. (a) Ways and means to.attract the companies for listing and providing facilities: (i) Charge listing fee at reduced rates 50% of fee charged by KSE/LSE. (ii) Provide research facilities for listed companies. (iii) Publish ready board quotations. (iv) Organise seminars and lectures. "' (v) Publish material for educating investors. (vi) Train and develop financial expertise relating to capital market: (b) Information relating to the project (projections) (i) Initial capital cost Ist year Rs.560,000 (ii) Recurring cost Rs.2,123,00 (Rs.1,476,000 being rent) (iii) Income from initial Rs.600,000 listing fee (iv) Annual fee estimated 2nd Rs.620,000 year (60% of rate of KSE/LSE) (v) Membership fee Rs.100,000 (vi) Construct own building (iii) Muhammad Igbal Zaki and Associates. (a) Ways and means to attract companies listing and providing of facilities: (i) Induce and convince companies within the area of influence to get enlisted. (ii) Subject specialists to be engaged for organising seminars, publication of brochures and literature., (b) Information relating to the project (Projections): (i) Cost of establishment Rs.500,000 (ii) Recurring cost per Rs.550,000 annum (iii) Sponsors to contribute initial cost and also accept donations (iv) Recurring cost to be met from membership fees, enlistment fees; donations, fines, profits from facilities and loans from the exchange. (v) Membership fee Rs.10,000 (iv) Raja Abdul Rehman and Associates In spite of repeated requests he has not been able to furnish information mentioned at para 14 while other applicants had furnished the same.

16. As required by section 5 of Securities and Exchange Ordinance, 1969, I invited all the applicants for hearing and they were heard on the following dates:‑ (i) Mr. Muhammad lqbal Zaki 26th May, 1991 (ii) Mr. Amanullah Khan 28th May, 1991 (iii)'Syed Sarmad Maqsood 29th May, 1991 Al‑Hussainy (iv) Raja Abdul Rehman 10th June, 1991

17. During the hearings, I explained to each of them the background of the case and the reasons for their being invited for fresh hearing. They were asked to explain their proposals and claims, in addition to whatever had been mentioned in the applications. All of them asserted their respective claims. However, no additional point of any significance was put forth.

18. A question which may agitate the minds of the public is as to what could be the possible reasons for rather extraordinary interest being shown by applicants for promoting the establishment of a stock exchange at Islamabad which will be a company limited by guarantee (whose profits are not distributable) and whose sponsors shall have to put in considerable efforts to raise the necessary infrastructure. There are different views on this subject. While some quarters think that registration would give a particular group importance in the financial and commercial circles as well as voice on the policy making others refer to expectations of financial gain. It is argued that the group obtaining registration is likely to exercise patronage in the selection and admission of members who may earn windfall profits on the sale of membership. In this regard, exceptionally high prices of membership cards obtaining at Karachi and Lahore Stock Exchanges is being mentioned. T consider it essential that those receiving permission to establish a stock exchange should not use this permission for their financial advancement. A stock exchange is an important financial institution whose sponsors should be primarily motivated by professional considerations. In the latter part of my order, I have suggested certain conditions to be imposed with the objective of ensuring that the Stock Exchange at Islamabad is established in a professional manner. I am confident that some of the conditions will provide a guard against excessive discretion in the selection of new members and temptation to use membership for financial gains. 18‑A. I have given careful consideration to the question as to which applicant or applicants may be granted permission for establishment of the stock exchange at Islamabad. Following options are available with me in this case:‑ (i) one of the four applicants may be granted permission; (ii) two or more applicant groups may be advised to join hands; (iii) all the four applications may be rejected, if none is found to be eligible.

19. According to sections 4 and 5 of the Securities and Exchange Ordinance, the competent Authority is required to take action on the applications having regard to the interest of the trade as well as public interest.

20. I have to decide as to which can be the best possible course that may ensure successful establishment of a stock exchange at Islamabad for which announcement has already been made by the Government. In my view the objective .can be achieved by selecting a single party having a strong sense of a commitment to the task. .

21. Analysis of the composition of the 4 groups is as under:‑ Mr. Sarmad Maasood Al‑Hussainy and Associates. The group consists of 17 persons, 12 of whom are members of Lahore Stock Exchange (LSE) and 2 are members of Karachi Stock Exchange (KSE). In addition, 2 sponsors happen to be secretaries of KSE and LSE respectively. As such, the group has intensive experience of dealing in the securities market. The main weakness of the group is non‑representation from Islamabad/Rawalpindi as well as absence of sufficient number ‑of persons representing industry and trade. Mt. Amanullah Khan and Associates. The group consists of 10 persons out of whom 5 are industrialists of Rawalpindi/Islamabad area, while 2 persons are local businessmen. One of the sponsors is a chartered accountant from Islamabad while the remaining 2 belong to Karachi. One of whom is an industrialist and other namely, Mr. Ferozudin A. Cassim is a leading stock broker of KSE. Mr. Cassim has long family tradition of dealing in securities and has been President of KSE. Mr. Muhammad Iqbal Zaki and Associates. The group consists of 12 persons out of whom, 7 persons belong to Islamabad while the remaining belong to Lahore. Most of the sponsors are businessmen or contractors. Only one person namely, Mr. Muhammad Abbas has some experience in advising on investment in securities. The group does not have any person who may have actual experience of stock brokerage. Mr. Abdul Rehman and Associates. The group consists of 11 persons out of whom 4 including Raja Abdul Rehman belong to Azad Jammu and Kashmir, while one each belongs to Jhelum, Lahore, Rawalpindi, Peshawar and Quetta. Two of them belong to Islamabad/Rawalpindi. While Raja Abdul Rehman is a leading industrialist heading the Raja Group of Industries, the remaining members of the group are owners of medium to small sized industries and business enterprises. None of the members has experience of stock brokerage although some of them have experience of investment in securities.

22. Although, Securities and Exchange Ordinance, 1969 and the rules framed thereunder do not contain any express criteria for comparative evaluation of applicants for registration, in case there may be more than one applicant. I am of the view that the groups led by Mr. Iqbal Zaki and Raja Abdul Rehman have inferior claim on account of the following factors:‑ (i) They do not have association of any person having practical experience of securities market/stock brokerage; (ii) They do not have association of leading industrialists of businessmen from the area where the stock exchange is to be established.

23. The group headed by Mr. Hussainy although competent to establish a stock exchange suffers from absence of any person from Islamabad/Rawalpindi where the stock exchange is to be established. 24: The group led by Mr. Amanullah Khan consists of leading industrialists and businessmen of the area as well as a professional and a leading stock broker from Karachi. I have reached the conclusion that the group led by Mr. Amanullah Khan and consisting of persons as mentioned in the original application, dated 22nd February, 1990 should be allowed registration for establishing the stock exchange at Islamabad. Their claim is further strengthened by the following two factors:‑ (i) Karachi Stock Exchange which was established in 1949, was promoted by 9 persons all of whom either belonged to Karachi or were living at Karachi at that time, while all of the ten promoters of Lahore Stock Exchange registered in 1971 either belonged to Lahore or were livings at Lahore at that time. On that analogy and even otherwise, it seems equitable that a group whose members are pre‑dominantly from Islamabad/Rawalpindi may be granted registration particularly when it has a balanced composition of the local industrialists, businessmen, as well as a stock broker (ii) The group Which belongs to Islamabad/Rawalpindi is bound to feel a strong sense of commitment to the establishment of an‑ important financial institution in the area.

25. I may state here that when the proposal for establishment of a stock exchange at Islamabad was under consideration of Co-operate Law Authority, I myself was of the opinion (which was expressed in the summary submitted by Mr. Irtiza Hussain, former Chairman, Corporate Law Authority to then Minister of State for Finance on 8th August, 1989) that the groups headed by. Mr. Amanullah and Mr. Al‑Hussainy may join hands to achieve a blend of local industrialists and businessmen on the one hand and persons having practical experience in securities market on the other hand. However, taking into consideration the developments which have taken place since 1989 like litigation in the Courts as well as failure of efforts for arbitration by certain quarters, I am now of the opinion that it would not be in the interest of the establishment of stock exchange at Islamabad and its smooth working to ask these two groups to join hands. As a matter of fact, prospects of the establishment of stock exchange at Islamabad may be seriously jeopardised if two parties which have been engaged in litigation are asked to jointly establish this exchange. However, it would be desirable that such members of the other groups which had applied for registration may become members of the Islamabad Stock Exchange, if they otherwise meet requirements of membership and criteria which I am suggesting in the latter part of the order.

26. Section 4 of the Securities and Exchange Ordinance, 1969 empowers the competent Authority to prescribe any conditions or requirements mainly with the objective of ensuring fair dealings and protection of investors. Taking into account usage in this respect, conditions can be prescribed to ensure that the stock exchange to be allowed certificate of registration, should be established on healthy basis, capable of meeting the genuine requirements of all the participants in the market. It has to be ensured that the stock exchange to be established becomes a dynamic institution receptive to fresh ideas and well‑equipped to meet the changing requirements. Recently, sudden boom in the capital market has been witnessed in our country which is reflected in increased volume of trading and escalation in the general index of share prices. The boom is attributable to the liberalized policies of the Government in respect of sanction of industries and allowing the non‑residents access to our secondary market. Controller of Capital Issues has also liberalized policies and procedures governing issue of capital and the most significant step taken is liberalization in the pricing of the shares being issued to the public. Demand for securities has suddenly increased partly because two of‑shore funds have been established whose proceeds are being invested in our securities market. This development has posed serious challenges to our stock market institutions as the momentum of development of capital market can be maintained only if in our stock market institutions like under‑writing facilities, trading practices and clearing and settlement systems are developed. We have to ensure maximum transparency of transactions in our market, orderly behavior of share prices and efficient systems of clearing and settlement. The new developments of course require the Stock Exchanges to have progressive outlook. There was time when stock exchanges operated as clubs. However, the great importance which securities market has assumed as an essential segment of the financial system helping mobilisation of savings and trends towards globalisation of the securities market has changed the concept of securities market in many countries. Today, a stock market has to operate as a financial institution quickly responding to the changing demands.

27. We have experience of the operations of Karachi and Lahore Stock Exchanges and a number of flaws have been noticed in their organisational set up, trading practices, composition of membership and the responsibilities of the brokers towards the investors. Corporate Law Authority as a regulatory body has been trying to improve the working of the two stock exchanges in different respects. Now that we are setting up a new stock exchange, it is. desirable to define the parameters of its establishment so that it may developed as a healthy, progressive and dynamic institution. The conditions being prescribed are expected to achieve the following objective: (i) to give adequate representation to persons belonging to the region as well as to certain occupational interest; (ii) to ensure that membership is not used as financial investment but should only enable membership to persons genuinely interested in their association with the institution; (iii) to ensure that members possess adequate academic qualifications and have sound financial background; (iv) to encourage establishment of brokerage houses and induction of institutional members; and (v) to provide sufficient financial resources to the stock exchange which is being established as a company limited by guarantee and source of revenue from listing of which is not likely to be substantial in the initial years.

28. In order to achieve the above mentioned objectives. Following conditions are being prescribed while granting certificate of registration:‑ (i) For the first five years, total membership shall not exceed 100. (ii) Members shall be drawn from the following categories in the ratio mentioned against each: (a) Local residents of Rawalpindi Division (Punjab), Tribal Areas Federal Capital Territories of Islamabad, Federal Area Arced Kashmir ‑and N.‑W.F.P. 50% (b) Stock brokers who are members of other stock exchanges. 25% (c) Bodies corporate including brokerage houses, investment banks and financial institutions 15% (d) Persons having experience in dealing in securities (investors and agents of stock brokers). 10% (iii) In addition to qualifications laid down in the Securities and Exchange Rules, 1971 a member should fulfil the following qualifications: (a) should be at least a graduate; (b) a member of another stock exhange should possess minimum experience of 10 years; (c) should have paid income tax during the last three years with minimum assessed income of Rs.100,

000. Brokerage houses which may not be three years old should be exempted from the requirements. (iv) The membership shall not be transferable through sale for the .first 10 years. (v) The Exchange shall have whole time Chief Executive who should possess suitable qualifications. The Chief Executive shall be appointed with the approval of Corporated Law Authority. (vi) The membership fee shall be Rs.200,000. (vii) The Board of Directors shall consist of 15 persons out of whom at least six should be active brokers, three should be professionals (Chartered Accountants, lawyers, investment bankers) to be nominated each year by Corporate Law Authority and at least one should be representative of body corporate members. (viii) The committee to be set up for selecting new members should have a representative of Corporate Law Authority.

29. After the announcement of this order, Corporate Law Authority shall undertake review of the legal provisions relating to the establishment of new stock exchanges. The amendments which may be considered necessary would be incorporated in the rules and would be given wide publicity so that those persons interested in establishment of stock exchanges in other cities should be aware of the policies and procedures. The proposed procedure may also involve the mode of assessing the need for establishment of stock exchange in a particular city. In case any application is received for registration of stock exchanges in other cities, it should pend till the new procedure has been finalised. AA./46/M Order accordingly.