Capital market reforms

The Asian Development Bank (ADB), according to a report published in this paper a couple of days back, has assured the government of making available $250 million fresh fund to carry out further reforms in the country's scam-hit capital market and also its insurance industry. The ADB has already disbursed $300 million in two tranches to help implement reforms following the collapse of the stock market in December 2010. It is reportedly satisfied with the reforms carried out with the funds it gave earlier though the market is nowhere near the much-desired turnaround.

The Capital Market Development Programme (CMDP) under which the ADB has been extending funds aims at beefing up the capacity of the capital market to mobilise sufficient funds to meet the economy's financial requirements to better promote growth and development. And the reforms that have already been carried out or are in the process of implementation, involve a number of relevant institutions, laws, rules etc. Laws and rules concerning capital, money and insurance markets have been amended as part of the reform measures. The Bangladesh Securities and Exchange Commission (BSEC) now enjoys more authority in financial matters than before. Besides, the Commission now claims itself to be better equipped than before in areas of market monitoring.  The much-discussed demutualisation of the bourses has also taken place.

However, despite all such reforms, the stock market, as it seems to be the case, is yet to overcome the severe shock it had suffered four years back. It is alleged that the shock was meticulously planned and spearheaded by a band of manipulators having links with the people at high places. The manipulators had artificially fast forwarded the indices to an absurd high level, leading to an inevitable collapse. The investors who had come to get rich overnight had burnt their fingers and left the market for good. But what has been more damaging is the withdrawal of a good number of informed and long-term investors following the collapse.  The so-called reforms have not been able to reignite any enthusiasm among them for coming back to the market.

There are enough reasons to suspect foul play in any noticeable rise and fall in the market in the recent past. Rumour, not speculation, which used to dominate the market in 2010, does still influence the investment decisions of small investors. The market, for no reasons, went up by 600 points in one-go last month with market turnover crossing the Tk.10-billion mark once. But the market clawed back to the previous level within days following the principle: what goes up must come down.  Yet another reason to suspect foul play is the abrupt fall in daily turnover at the bourses for the last few days following the introduction of new and efficient transaction software at the Dhaka Stock Exchange (DSE).

The fall can be attributed to the withdrawal of a section of market manipulators fearing detection. In fact, it proves that there are still many holes in the system of floatation of primary shares and trading in the bourses. Simultaneously with carrying out institutional and legal reforms, those holes need to be plugged effectively to let the market operate normally. But in doing so, the BSEC will have to make sincere efforts to monitor both share trading and other aspects of listed companies and punish the wrongdoers. Attracting more foreign funds alone will not do the trick. If the genuine interests of the investors are protected, the confidence in the stock market will automatically be restored.