ADB suggests govt intervention to get DSE, CSE merged

FE Team | Published: July 12, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

FE Report
A report of Asian Development Bank (ADB) said the Securities and Exchange Commission (SEC) and both the stock exchanges of Bangladesh should improve the share trading surveillance and monitoring system to ensure transparency and accountability as far as operation of the bourses is concerned.
The ADB report suggested separation of surveillance and investigation and development of improved systems for surveillance and monitoring by the bourses as well as the SEC separately.
"The SEC should develop or acquire its own market surveillance system - not to duplicate what the exchanges are doing but to monitor the exchanges," an ADB consultancy report, prepared under Bangladesh: Financial Markets Governance Programme, said. The programme is financed by ADB's Technical Assistance.
The report was prepared by Hong Kong-based International Securities Consultancy Limited, US-based Aries Group Limited, and Dhaka-based HB Consultants Limited.
The report said a modern and efficient market surveillance system for the exchanges and the SEC is estimated to cost $300,000 each.
"An efficient surveillance system is imperative to detect market manipulation, which is most commonly known as share-ramping and often done with the connivance and/or support from a trader," the report said.
It said Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) should merge through 'government intervention'.
" DSE and CSE should merge in the interest of investors, other market users and for the sake of cost efficiency as well as efficiency of regulation, but since neither exchange has a desire to merge and when specially DSE is very much opposed to merger, this could only be achieved through government intervention," the report added.
The ADB consultants, however, agreed with the view of the SEC that a 'forced marriage' would be unsuccessful, and given the strong views expressed by the DSE, they recommend that no further action on merger of the two exchanges should be initiated by the SEC at this time.
The report said improved governance, smaller boards, fewer committees, a new Regulatory Review Committee and improved surveillance could bring about demutualisation.
The ADB consultants said the DSE and CSE boards should be cut by half with each board comprising a majority of independent members.
The number of committees should be reduced as Finance Committee, Audit and Risk Committee and Remuneration and Nomination Committee (to include Corporate Governance, once the Code of Corporate Governance comes into being), Disciplinary Committee, Appeal Committee, and Regulatory Review Committee (possibly including Audit and Risk or separate).
The report suggested that listing should be a function of the executive, not a committee. Listings should be approved by the executive under authority granted by the Board.
If the executive has an issue concerning a particular listing, it should refer the matter to the Board for consideration. The other market committees should be established as advisory groups.