Let's do justice to sponsor directors in stock market

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Sadiq R Malik Bubble and burst climaxed in 1996 overshadowing the capital market in Bangladesh. The scale of benchmark price of DSE, DGEN, and general price index increased by 139.3 per cent, in 1995, and remained at 834.7 per cent at the end of that year and peaked to 337 per cent in 1996. DGEN grew at an accelerated rate reaching a peak at 3648.7 by November 5, 1996. This is an increase of 280.5 per cent. A crash in the market happened and DGEN lost 2892 points causing a fall of the capital market till the end of 2003. The price index was below 800. Recovery of the market edged slowly up to a robust growth till December, 2009. In the year, January 2010 to December 2010, DGEN marked an increase by 80 per cent and daily turnover was up by 60 per cent. The number of B.O. account holders reached 3.21 million from 1.25 million i.e. an increase of 154 per cent. The GDP in the financial year of 2010 has seen only 5.5 per cent. This resulted in the fact that the capital market was unsustainable. The 1996 crash was speculative whereas 2011 one was an asset bubble. In 1996, index lost 232 points, while a loss of 10 per cent happened in 2011, a loss of 660 points. An analysis of the capital market behaviour shows that the reasons were the over-exposures of banks, insider trading , omnibus accounts, anomalies of the BO accounts, restricting nexus of big players like SEC, DSE/CSE and political leaders. DGEN nose-dived, 66o points, within the an hour of trading session in January, 2011 instigating a rampage and vandalisation of cars and shops and a battle against the law- enforcing authority of Bangladesh. A lesson to be learnt here is that the stock market is not a casino. rather an efficient vehicle of efficient capitalistic and competitive free markets. Victimisation of sponsor shareholders can be enunciated as follows: The High Court on April 8, 2012, issued a rule asking as to why the securities regulator's directive, regarding holding minimum two per cent shares by sponsor directors, should not be declared illegal. The argument, as it was, was to stop future fall of the market and protect the common public as investors in the share market. But, as we see, the market is still very volatile and does not show any sign of growth. Therefore, one may ask, why this two per cent binding has been imposed on the sponsor share-holders? The bench of the High Court Division, comprising Justices Farid Ahmed and Sheikh Hassan Arif, issued the rule following a writ petition filed against the decision of the SEC. Abdul Momen, an applicant for the directorship of National Credit and Commerce Bank Ltd. (NCCBL), filed earlier the petition. Leaders of DSE, one of the respondents, took action regarding this HC rule. The HC did not issue a stay order on the SEC directive. The Finance Secretary, the Commerce Secretary, the SEC Chairperson, the Bangladesh Bank Governor, MD of NCCBL, the Registrar of the Joint Stock Companies (RJSC) and the financial authorities of DSE/CSE were made respondents of the HC rule. On November 22, 2011, the SEC imposed the mandatory provision for the sponsor directors, other than independent ones, for holding at least 2 per cent of their companies paid-up capital within six months. The period expired on May 22 of 2012. This highlights the obvious fact and injustice had been imposed on the sponsor share-holders, who invested years ago without even knowing the future of their investment in the years ahead. This risk in giving birth to a company or vis-à-vis the investment made them the victims of their efforts to contribute to the financial growth of the country. As we know: 'Exception proves the law'. In this case, 'sponsor shareholders' may be spared. Two examples narrated below remind us of the importance of mothers to their progeny: One: Two ladies demanded a child as their own and the judge could not decide on the rightful mother. So he passed the judgment as such: slice the child and give each half to the ladies. On hearing this judgment, the real mother cried out to the judge and requested him to give the boy to the other woman and not to dissect him. The judge immediately knew the identity of the real mother. Two: It is well-known that Ishwer Chandra Vidyasagar crossed the river to be near the side of his sick mother. On reaching the bedside of the ailing mother, he was asked by the mother to fetch a glass of water for her to drink. Vidyasagar fetched water only to see that his mother is asleep. He stood all night with that 'glass of water' at mother's bedside. There is a joy and pain in giving birth to any entity, human being or company, and only the mother can experience the infinite love and sacrifice for her offspring. This, in my view, is equivalent to the category of 'sponsor director'. The directives can only come from an officer/false mother, who has not established/given birth to a company, by himself, to generate employment for the people of Bangladesh. This two per cent directive pained more than 1,275 sponsor directors of companies. Sponsor directors are, therefore, victims of some one's creation. Dr. Sadiq R Malik an ex-sponsor director of Delta Life Insurance Co. Ltd. smalik51@hotmail.com (The article was sent to The FE a couple of days before this week’s High Court order on sponsor-directors)