Capital market: Towards stability and transparency | The Daily Star
12:00 AM, March 10, 2015 / LAST MODIFIED: 04:22 PM, March 23, 2015

24th Anniversary of The Daily Star (Part 1)

Capital market: Towards stability and transparency

Dr. M. Khairul Hossain

Capital market plays an important role in the economic development of a country. Research studies conducted worldwide indicate that there is a high degree of positive correlation between the size of the capital market measured in terms of market capitalisation and the level of economic development. In case of Bangladesh, the capital market's movement is not only important for economic development but it is also important in the context of maintaining social harmony and ensuring a healthy political atmosphere.
Since joining in May 2011, the present Bangladesh Securities and Exchange Commission (BSEC) has been laying emphasis on restoring investors' confidence, bringing stability in the capital market and promoting its development. A 5-dimensional approach was followed in this regard. The approaches are: 
    * Conducting awareness raising programs
    * Enacting and amending rules and regulations
    * Ensuring better governance 
    * Adopting appropriate technology, and 
    * Arranging regular coordination meeting with the ministry, Bangladesh Bank, stock exchanges and relevant stakeholders. 

During the last few years, a number of reform programs were undertaken by the BSEC with a view to bringing stability in the market and making Bangladesh's capital market the main source of long term financing of industrial and infrastructural projects. In this regard, based on short- mid- and long-term goals, BSEC has prepared a 10-year master plan for capital market development. It is expected that the fundamental problems of the market would be removed and its stability and depth would be increased in the long run with the progress of implementation of the master plan. 
A number of awareness programs for investors, journalists and different types of stakeholders were organised by the Bangladesh Securities and Exchange Commission, stock exchanges and Bangladesh Institute of Capital Market (BICM). Besides, different merchant banks, brokerage houses and listed companies also arranged some training programs on the fundamentals of capital markets, where BSEC officials participated as resource persons. BSEC also disseminated important information through its website for helping investors in making informed investment decisions. All activities pertaining to amendment and enactment of various rules and regulations were also disseminated to investors. In all cases, investors' interest was given priority. This partly helped restore their confidence.
The commission, with the support received from the government, has already amended the Securities and Exchange Ordinance, 1969 and Bangladesh Securities and Exchange Commission Act, 1993. The main objective behind this amendment was to empower the BSEC in terms of enhancing organisational capacity and operational efficiency, providing financial independence and ensuring accountability of all working in the commission.
Stock exchanges were demutualised in accordance with the Demutualisation Act, 2013, passed by the parliament. Bangladesh Securities and Exchange Commission also passed the Scheme of Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited. Both the exchanges became demutualised on November 21, 2013. As a result, changes took place in the governance structure of the stock exchanges and management and ownership of both the stock exchanges became legally separated from trading rights. Majority of board members inclusive of the chairman of the board belong to the independent directors category. Demutualisation has also uplifted stock exchange's operation to the world standard and increased transparency, accountability, and confidence in it. Demutualisation also helped in improving speed and flexibility in decision making and adopting new benchmarking technology. It may be mentioned here that, with firm determination of the government and BSEC, and with active cooperation of the members of the stock exchanges, the demutualisation in Bangladesh stock exchanges could be completed faster than elsewhere in the world. The demutualisation process, based on privileges and obligations of the shareholders as well as transparency and accountability to be maintained in operational activities of the DSE and CSE, can emerge as a role model for other exchanges of the world. 
BSEC in line with the present government's goal of digitalisation has installed a state of the art surveillance system with online integration.  DSE has also installed the same surveillance system. CSE has already established modern trading system with internet based trading option and is also connected with BSEC's surveillance system. As a result, different types of manipulation are being detected when they occur and proper enforcement and regulatory actions are being taken based on the gravity of the offence. Central Depository Bangladesh Ltd (CDBL) with its IT facilities maintains records on BO accounts, shareholding position of different companies and preserve all types of records on daily transaction.  With the launching of DSE's Next Generation Automated Trading System the capital market will move faster, more efficiently and more transparently. Efforts are also being made by BSEC for full automation of activities related to monitoring, supervision and operations of required activities in the capital market.  

Bangladesh Securities and Exchange Commission complied with all conditions required by the International Organisation of Securities Commissions (IOSCO) to become its full signatory to Multilateral Memorandum of Understanding (MMoU), i.e, 'A' category member and became listed in Appendix-A, and  signed the MoU on December 22, 2013. As a result, the status of BSEC has been upgraded worldwide and achieved the capability for contributing in IOSCO working committees. Through this achievement, the image of the country has been elevated in the international arena. It may be mentioned that, after inclusion of BSEC in the A category of IOSCO, foreign investors have started considering the Bangladesh capital market as a disciplined one and their confidence in the market has increased significantly; this is evident from the contribution of foreign investment to the daily turnover of DSE.
With a view to ensuring good governance in the listed companies, Corporate Governance Guideline (CGG) has been amended making it compulsory to "comply" for all listed companies. As a result, the number of independent directors has been raised to 20% of the total board size for all listed companies. The chairman of the Audit Committee must be an independent director. CGG has raised the responsibility and accountability of the directors and management, which has also helped enhance the confidence of all stakeholders as well as investors in financial disclosure of the listed entities.
One of the major problems for investors and all stakeholders was misrepresentation of the DGEN Index on share price movement. On one hand, the construction methodology of the Index was wrong, on the other hand, the data based on which indices were calculated were not at par international standard. In one day, after listing Grameenphone on DSE, DGEN jumped by 764 points. This was the outcome of inappropriate methodology and construction of DGEN Index. BSEC instructed DSE to eliminate these inconsistencies with the affiliation of an international reputed firm, Standard & Poor's. Accordingly, DSE developed new indices of international standard which reflect the real movement of share prices.
For speedy disposal of capital market related cases, the government has established a special tribunal on January 7, 2014 and appointed a District and Session Judge as the Judge of the Tribunal on February 24, 2014. This also increased investors' confidence and helped restore discipline in the capital market. 
As per commitment of the honourable Prime Minister to the small investors, government has declared an incentive package for protecting the interest of the small investors, which has been implemented very successfully. 
To avoid manipulation, the commission has converted the face value of all the listed shares and mutual funds to Tk10 on the same date. This has helped to control the unusual price hike of different securities by declaring the stock split on different dates.
Coordination meetings of BSEC with Bangladesh Bank and other stakeholders are being organised on a regular basis for smooth operation of the capital market.Currently BSEC is making a feasibility study for establishing an automated data storage and retrieval system in its office along with the facilities of risk based supervision. The commission is also working on having a central Clearing & Settlement Company, launching financial derivatives product and a commodity market. 
All efforts of the commission have been directed towards enhancing the efficiency and transparency in the operations of the stock exchanges, protecting the interest of investors and bringing the Bangladesh capital market to the mainstream of development of the country. 
Considering a number of parameters like contribution of market capitalisation to the GDP, fund supply from capital market for industrialisation and infrastructural development and extent of foreign investment in Bangladesh capital market and finally, comparing these indicators with those of neighbouring countries and other developed markets, there remains a huge opportunity for Bangladesh economy to develop faster, if the full potential of the capital market is utilised.

The writer is Chairman, Bangladesh Securities and Exchange Commission.



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