Stock regulator, NBR must work together for better monitoring

The stockmarket regulator should work together with the National Board of Revenue to analyse the financial strength of companies that fabricate higher profits with asset re-evaluation.

The NBR can also support the monitoring by providing relevant tax data to Bangladesh Securities and Exchange Commission (BSEC).

The BSEC can then apprehend such companies that seek listings with false financial data, said AB Mirza Azizul Islam, former finance adviser to caretaker government.

He spoke at a roundtable on the prospects of the stockmarket, organised by Appollo Ispat Complex, a steelmaker, and thereport24.com, an online news portal, at the National Press Club in Dhaka yesterday.

Touhidul Islam Mintu, editor of thereport24.com, presided over the event. Law enforcement and judicial action are slow in the country with some of the cases of the 1996 stockmarket crash yet to be resolved, Islam said.

The political interest of ministers and secretaries, and the directorships, cars and flats they get from the companies are the main reasons behind the delay in the listings of state enterprises, he said. 

Professional management, good governance and political stability are the main drivers of a dynamic stockmarket, he said.

Financial Reporting Act should be passed in parliament to make the publicly traded companies' financial accounts transparent. 

“Some companies' accounts remain non-transparent due to the absence of the Financial Reporting Act. This is resulting in a range of manipulations, including exaggeration of share prices,” he said.

“While registering any company on the stockmarket, the BSEC should conduct a field scrutiny of the companies and check tax documents instead of solely depending on papers prepared by issue managers.”

The rise or fall in share prices depends on companies' audit reports, Shakil Rizvi, a director of Dhaka Stock Exchange.

High standards of audit observed in developed countries should also be maintained in the country to improve the capital market, he said.

“The increase in share prices of a firm should be based on its earnings, assets and the ability to pay out dividends,” he said. “If companies grow, the capital market will experience dynamism and not remain static.”

The DSE will launch some new products through Islamic bonds in the stockmarket, said Swapan Kumar Bala, its managing director. “We have initiated the launch of clearing corporations for derivatives.”

“A commodity exchange will be introduced after establishing clearing corporations. Multi products will be launched once we introduce automation of the DSE which is scheduled for the second week of December,” said Bala.

“The step will ease the trading through iPads and mobile phones. New products will be launched on the DSE through exchange-traded funds,” he said, adding that the 'over-the-counter' market will be the alternative market once it becomes vibrant.

The Financial Reporting Act received the cabinet's final approval on November 10 and could be passed in the next session of the parliament, he said. “But the act has not been made public and I do not know why such a public issue is shrouded in secrecy,” he said.

Pointing to the weakness of fund managers, he said 18 funds were formed between 2010 and 2013, but there was none in 2014.

“This can be attributed to the weakness of fund managers, apart from legal frailty. The regulatory body should be stricter about fund managers,” he said.

He stressed attracting good companies to the capital market, but said some may be deterred by an overly regulated market.

“Many companies do not like the idea of sharing all their information publicly,” he added.

The “right to financial accounts” will boost confidence of investors and their participation in the market will rise manifold, said Md Moniruzzaman, managing director of IDLC Investments. The proper disclosure of financial reports with global accounting standards will help the market grow further, he said.

Some companies show higher profits -- sometimes more than double the market leader's profit, just to be listed on the stockmarket, he said.

Profit manipulation before the initial public offering should be dealt with strictly, he said.  

Some companies issue bonus shares without expansion, which is a bad practice, Moniruzzaman said. Multinational companies announce cash dividends instead of bonus shares, he said.