The Dhaka Stock Exchange has come up with a set of proposals to rein in sponsors, directors and placement shareholders from dumping their shares as it battles to stem the tide of negativity surrounding the bourse.
The proposals were handed over to the stock market regulator, Bangladesh Securities and Exchange Commission (BSEC), at a meeting yesterday.
“We need to put a brake on the share selling by sponsors and directors, many of whom are engaged in share business instead of running their companies efficiently,” a top official of the DSE told The Daily Star after the meeting.
Sponsors and directors hold the bulk amount of shares, which are offloaded frequently -- flooding the market with shares, he said.
Once the majority of their shares are offloaded, they become least bothered running the company and paying dividends to shareholders, he added.
The other proposals include: limiting private placement of shares; bringing in fundamentally good companies, both local and foreign, into the market; revisiting the exposure of banks, non-banks and their subsidiaries; and withdrawal of circuit breaker of highly volatile companies.
But most of the points the DSE made were on share selling by sponsors and directors of listed companies, which the bourse thinks is a major reason for the ongoing bear run.
Bangladesh's capital market is hugely underperforming because of a lack of quality stocks, poor governance, frequent volatility and weak monitoring by the regulator to detect manipulators. The DSE's market capitalisation now stands at about 15 percent of the GDP, which is close to 100 percent in India, more than 60 percent in Nepal and far more in developed markets.
The shares of sponsors, directors and private placement shareholders shall be in a separate category under the Central Depository Bangladesh, stocks' trading settlement service provider, with separate flagging system for identification, so that they cannot sell those at their will, as per the DSE's proposal.
Contacted, KAM Majedur Rahman, managing director of the DSE, said: “By introducing a separate category, the system will block their shares when they go to sell without giving prior declaration. All the shares would have a category that can recognise the shares' owners.”
The DSE wants to ensure minimum shareholding by sponsors, so it proposed a system in which the directorship will be ceased automatically if the shareholding falls below 2 percent of paid-up capital.
Furthermore, the DSE proposed a new category to be launched for companies whose directors do not hold 2 percent shares individually and 30 percent shares combined.
Sponsors and directors' share sale would be executed 15 days from the date of declaration, giving general investors enough time to decide whether they would hold the company's shares or not.
In case of newly-listed companies, the premier bourse also wants a lock-in period of three years from the date of trading debut for sponsors and not from the date of approval of prospectus.
In the meantime, if the company declares any stock dividend, the stock-dividend portion of the sponsor-director will be locked in for one year.
A lack of supply of fundamentally sound stocks is a big problem in the market, so some initiatives are needed to attract companies that are large in size and are fundamentally strong, the DSE said.
The government as well as the BSEC can take the required initiatives to offload shares of state-owned enterprises in the exchanges.
Currently, a large number of foreign companies are running businesses in Bangladesh but only a few are listed on the stock exchange.
The premier bourse also proposed enhancing the investment capacity of state-run Investment Corporation of Bangladesh by easing restriction of its single party exposure and capital market exposure to give more support to the market.