The stock market is set to be unbolted today after a good two months and that too under the leadership of new faces at the Bangladesh Securities and Exchange Commission (BSEC).
This unlocking can be viewed as a reset and reboot of the stock market of sorts, one that is breeding hopes of renewed confidence in the bourse.
The last commission, led by M Khairul Hossain, ended its nine-year-long tenure leaving the stock market ill at ease.
During his time, the Dhaka Stock Exchange’s market capitalisation increased by just 16.71 per cent to Tk 312,235 crore.
Turnover, one of the major indicators of the market, is now in the neighbourhood of Tk 221 crore. When the commission had begun its tenure, it was Tk 524 crore.
Why has the confidence crisis cast a shadow over this commission?
The answer lies at the tasks of the new commission: It is necessary to understand what are the factors that led to the crisis in the first place over the last decade.
When the last commission took charge, the market was just coming out of one of its worst crashes. So, the stage was set for it to reform the market with a firm hand.
The commission had formed many rules and regulations and even bought a costly software to stop manipulation.
However, manipulation was a common phenomenon in the last decade as the regulator did not exercise its power. As a result, many junk stocks were trading above the price of well-performing companies.
This impacted the confidence of investors, local, foreign and institutions.
In some cases, the regulator did fine the manipulators. However, it was disproportionate to the harms caused.
The newly appointed commission, led by Shibli Rubayat-Ul-Islam, should be strong against the manipulation because it would be fruitful for the market in the long run.
The last commission had failed to compel the sponsors of listed companies to comply with the rule of holding a 2 per cent share of their company individually and 30 per cent jointly. So, the sponsors just washed their hands off the companies before they tanked and didn’t try to lift them.
This happened several times, creating woes for general investors.
The new commission should focus on it because if sponsors have an insignificant stake, they would not feel the urge to work for the betterment of companies.
Asset management companies also dented investors’ confidence. Here again, the regulator played a decisive role by extending the tenure of mutual funds by another 10 years and allowing a return on units instead of cash dividends.
A foreign investor sued the BSEC as their stake was too high and they were expecting higher profits from at least three funds as they were maturing.
Now, they would have to wait another decade to log in profits.
The commission had amended the rules in favour of assets management companies at the expense of general investors. The new commission is expected to work for the sake of investors.
The commission should not mind if the index is going up or down because this is not its headache at all.
In the last 10 years, many companies came and raised capital from the stock market and became a non-performing company subsequently. And a few issue managers were involved in these cases.
The regulator should ensure that no issue manager gets the chance to do it again.
When a company is going down, the BSEC has the authority to replace the board to make it a profitable one.
The last commission also failed to bring any big companies to the market and was rather dependent on the issue managers.
The market has an appetite for well-performing big companies and their listing can restore confidence.
The new commission should concentrate on bringing the local and multinational companies to the market and remove barriers standing in their way.
The main barriers are the lengthy initial public offering process and weak corporate governance among non-listed companies.
The priority should, however, be to remove the floor price to make the market liquid.
The last commission fixed the floor price on March 19 for all stocks based on the average price in the last five days to avoid further fall.
The floor price has turned the market illiquid because it was not market-driven. Many foreign investors were angry at the decision because they prefer a liquid market.
As the economy is squeezing and people’s purchasing power fell, companies are expecting lower profits. This may lead to crash but it won’t be worse than the artificial price brought on by the floor price.
Product diversification should be another goal of the new commission. The bond market needs to get priority and some initiatives may make the market vibrant.
The market is rumour-based as listed firms do not disclose information on time. They will only share information after a final agreement is inked. But before the final agreements, they usually sign initial deals.
And stock prices react much before a company makes available price-sensitive information. So, the BSEC should think about the timing and stage of the price-sensitive information before rumours fly around.
Listed firms are bound to explain if their financial status deviates significantly. But many companies give a single line explanation and this ultimately means nothing to investors. As a result, rumours take hold.
The new commission would have to focus on how to remove the confidence crisis.
And it would not happen unless the commission focuses on maintaining rules and regulations by all the stakeholders, ensuring punishment for the manipulators and bringing reputed companies to the stock market.