The floor price restrictions that the securities regulator had introduced one and a half years back to stop the market from falling steeply, it seems, will be lifted after the upcoming 12th parliamentary polls.
Top guns at the Bangladesh Securities and Exchange Commission (BSEC) who defended staunchly the restrictive mechanism for the 'greater interest of the small investors' have changed their stance in recent days. They now favour the withdrawal of the floor price. To garner support for their changed stance, the BSEC a couple of days back convened a meeting with the stockbrokers. As an obvious outcome, all the stockbrokers unanimously wanted the restrictive mechanism to go.
The truth is the floor price mechanism has caused more damage to the market than what a medium-scale collapse could do. It is also difficult to measure now to what extent the floor price protected the interests of the small investors.
The floor price is an artificial mechanism to stop the decline of stock prices in a market. A close look at the stock market movements in the months preceding the introduction of the floor price would reveal the real situation on the ground. For no tangible reasons, some stock prices started rising abnormally when the country's economy was reeling from the pandemic shock. There were lots of talks about taking the Bangladesh stock market to a new height. As the market turned dull and drab following the imposition of the floor price, not much has been heard from those people who were out to publicise the 'great potential' of the market.
Before the market went into hibernation, some influential quarters who had engineered a few short-lived market rallies could manage sizeable financial gains, it is widely alleged.
If the BSEC is willing to lift the floor price mechanism soon after the polls, it needs to spell out the reasons behind it. Does it foresee an economic turnaround after the polls?
Economists think that core economic problems will persist even after the next national polls. They feel a few problems might ease, to some extent, but many others are unlikely to show a sign of abatement unless and until the new government opts for hard and painful reforms. Right at this moment, it is difficult to say what the next government will do. But hard and painful reforms have always been bypassed by all the governments in the past. Will there be any deviation this time? One might find it very difficult to pin hope on such a possibility.
Polls or no polls, the floor price mechanism must go. Let the market act naturally. The BSEC should not have waited so long to allow the market to regain its natural pace.
The macroeconomic factors, particularly the ones relating to inflation, exchange and interest rates, banking sector liquidity etc., do not favour any notable turnaround of the capital market. Investments by financial institutions, banks in particular, play a major role in boosting trade in the Bangladesh stock market. Under the prevailing circumstances, any major fund inflow from these entities to the stock market is highly unlikely.
So, even if the market slides following the withdrawal of the floor price, stakeholders concerned should hold their nerves and allow the market to stabilise naturally. The securities regulator on its part needs to prevent manipulation of all sorts. It should concentrate on market reforms rather than aiding, knowingly or unknowingly, any move to lift the market artificially.
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