Demutualisation to boost transparency in market

The demutualisation of stock exchanges is important to ensure transparency and accountability in the market as it separates management from ownership, a former Bangladesh Bank governor said yesterday.
Once demutualised, a stock exchange must become a profit-oriented competitive organisation and be accountable to its shareholders, said Mohammed Farashuddin, also president of the Board of Trustees of East West University.
Farashuddin spoke at a members' conference on “Demutualisation of Stock Exchange: Rationale, Country Practices and Road Map for Bangladesh”, organised by the Institute of Chartered Accountants of Bangladesh (ICAB) in the city.
He said exchanges are not considered to be efficient in maintaining transparency and have not been able to, especially in Pakistan, prevent insider trading.
Demutualisation transforms a stock exchange from an entity owned by mostly brokerage-owning members into a for-profit company owned by shareholders.
It ensures a good corporate governance, alternative business models and operational efficiency. A demutualised exchange can also freely trade on the market like any other public company.
Farashuddin said the process would eliminate the conflict of interests in decision making as owners will not be the managers and the role of regulators and players will be clearly defined for the interest of the market.
The probe committee, headed by Bangladesh Krishi Bank chairman Khondkar Ibrahim Khaled, had strongly recommended that the government must demutualise the bourses as soon as possible.
Farashuddin said the procedure of demutualisation should be completed in due time, which has been increased to December 2013.
He said independent directors should audit the financial statement of listed companies to ensure corporate governance.
The membership of stock exchanges should be made open to all and it is not a good practice that one person is acting as a broker, dealer and also as a member, he said.
Farashuddin said the Securities and Exchange Commission should give more attention to omnibus accounts to increase transparency in the market as some people might be manipulating the market through these accounts.
Online trading should be the first priority of bourses, he said.
He said the SEC chairman should enjoy the same status as a judge of the Appellate Division of the Supreme Court does.
The government should strengthen the SEC to enhance the investor confidence, he said.
Dr Jamaluddin Ahmed, council member and past president of ICAB, presented the keynote paper in the programme.
Ahmed said demutualisation would improve regulatory framework and operation, adding that it has been observed that share values of some profitable companies have been increased fictitiously.
With the increased confidence in the stock market, the investors will also see the benefits in diverting their savings into investment, he said.
He also said it should be kept in mind that demutualisation is not without risks and the most challenging issue here is to identify those risks and take appropriate measures to mitigate those in the process of successful execution of demutualisation.
Arif Khan, member of SEC, said demutualised stock exchanges with a profit-oriented corporate model will enable the management to take action in the best interest of customers and the exchanges itself.
It will help remove conflicts of interests between owners and management, he added.