ADB preparing stock market reform plan
January 10, 2012 00:00:00
Mohammad Mufazzal
The Asian Development Bank (ADB) is identifying the reform actions that the government should implement for developing the country's stock market, its country director Thevakumar Kandiah told the FE Monday.
"We are observing how the government is improving the governance of the stock exchanges as a part of the ADB's Country Partnership Strategy for Bangladesh for 2011-15. Demutualisation is one of the key elements that can help improve the system of governance of the bourses," Kandiah said.
The ADB approved the five-year country partnership strategy, which includes a plan to develop the country's infrastructure and also its capital market.
Mr Kandiah also said the ADB has moved to offer programme loans, as availability of long-term financing is one of the key constraints of infrastructure development.
"We will provide loans in particular sectors, including the infrastructure development of the stock exchanges."
"A team of the ADB consultants is preparing suggestions on the proposed demutualisation, and the report will be submitted to the government. Then the government and the stock exchanges will decide which model would be the best for Bangladesh," Mr Kandiah said.
By this time, the securities regulator has invited tenders to develop surveillance software with the help of the ADB to ensure better monitoring and transparency in the stock markets.
"After the development of the software the regulator's market monitoring activities will be strengthened further," the ADB country director expressed the hope.
Regarding co-ordination between the regulators of stock and money markets, he said it is very important to maintain the co-ordination sincerely.
"The government securities are regulated by the Bangladesh Bank, though these securities are also listed with the stock exchanges. Co-ordination between these organisations should be maintained properly, so that any misunderstanding cannot affect the market," Kandiah said.
He said stock markets all over the world are subject to rise and fall, but many other factors, including the investors' education, can help stabilise the market.
The main index of the Bombay Stock Exchange (BSE) lost 25 per cent in 2011. It was considered a normal phenomenon. However, broader securities and educated investors help make the market more stable, he also said.
Regarding the independence of the securities regulator, he said the regulator needs proper rules and regulations as well as enforcement capability for ensuring proper supervision over the stock markets.
"The securities regulator will have to see whether the rules are properly enforced or not," Kandiah added.
Recently, the ADB has made an assessment over the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE) in line with its country partnership strategy.
According to the assessment, Bangladesh's capital market remains at a nascent stage of development despite some recent improvements.
"Bangladesh lacks a well-articulated regulatory framework to provide oversight and investor protection or to ensure disclosure, accounting standards and governance as required," the assessment said.
It also said despite the rapid growth in 2010, Bangladesh has the lowest ratio of market capitalisation to gross domestic product (GDP) in South Asia.
"The capital market enjoys little market supervision. Transparency is poor, and there is inadequate disclosure, both in trading and in the quality of information," the ADB's assessment said.
Frequent changes in regulatory policies and introduction of commercial banks into merchant banking have contributed to making the market uncertain, it also added.