Freeing the stock market from undue interferences

The recent restructuring of the Bangladesh Securities and Exchange Commission (BSEC) following the August transition signals a significant shift towards freeing the stock market from regulatory interferences. This move aims to allow market forces to determine the course of share transactions, fostering a fair and transparent environment for investors. For over a decade, manipulation, often facilitated by collusion with regulators, distorted the market index, leaving long-lasting damage to the country's stock market. Experts argue that during the previous administration under Sheikh Hasina, successive commissions exerted direct or indirect influence on market indices and turnover. The objective was to create an artificial sense of optimism among investors. Through such machinations, the market displayed engineered movements to lure new investors, only for many to suffer losses as overpriced shares were dumped onto general shareholders. Despite repeated media reports highlighting these malpractices, the regulators at that time ignored the issue, allowing manipulators to operate with impunity.

The new commission, established under the interim government, has pledged to restore good governance and investor confidence. As part of this commitment, several probe committees have been formed to investigate past malpractices and identify the culprits. Stringent actions have been taken against brokers and investors violating securities rules, signalling a zero-tolerance policy towards misconduct. The newly appointed BSEC Chairman has emphasised the importance of fostering investor confidence through fundamental changes driven by market dynamics, rather than temporary or artificial measures. To achieve these goals, the BSEC has created a task force to recommend comprehensive reforms aimed at revitalising the market and setting it on a sustainable growth trajectory. This leadership has also prioritised disciplining market stakeholders. In an assertive move to enforce compliance, the BSEC imposed hefty fines on manipulators and companies implicated in malpractices under the previous regime.

A report by The Financial Express sheds light on gross irregularities that contributed to the market's instability over the past decade. Among these were frequent changes in margin loan ratios by regulators to encourage borrowing and market liquidity. While this temporarily boosted investments, it eventually led to negative equity burdens on investors. Additionally, regulators relaxed rules to accommodate poorly performing companies, undermining market integrity. Another contentious issue was the extension of tenures for closed-ended mutual funds (MFs), which eroded investor trust when unit holders were unable to liquidate their assets.

At a time when alternative long-term investment opportunities are scarce for the average investor, a sound and transparent stock market could provide a much-needed relief. However, this requires liberating the market from undue influences, ensuring that the performance of stakeholders-companies, brokers, and investors-is the sole determinant of market outcomes. The measures undertaken by the new commission are steps in the right direction. By addressing past irregularities and enforcing stricter regulations, the BSEC is laying the groundwork for a healthier stock market. This approach not only restores investor confidence but also ensures that the market operates as a fair, efficient, and transparent platform.