BSEC directive on directors\\\'shareholding goes barren

Mohammad Ali | Published: April 01, 2015 00:00:00 | Updated: November 30, 2024 06:01:00

The much-hyped regulatory directive for holding certain volume of shares by the sponsor-directors of listed companies has failed, in its part, to revitalise the scam-hit capital market, insiders and experts said.
The directive, they said, was one of the key rescue measures to help boost the investors' confidence and rejuvenate the bourses following the 2010 debacle.
They hold a number of factors responsible for the salvage-step not being effective -- the latest one coming from the prolonged political instability.
Other factors contributing to the lacklustre performance of the market include the reduced level of banks' exposure to the stock market, decline in portfolio values of merchant banks and brokerage firms and fall in foreign portfolio investment.
Besides, indifference on the part of the Bangladesh Securities and Exchange Commission (BSEC) to the implementation of its directives coupled with the delay in the settlement of securities-related cases has contributed to the erosion of investors' confidence, they said.
The regulator, in late 2011, issued the notification asking the sponsor-directors of listed companies to collectively hold a minimum of 30 per cent stake of the paid-up capital and 2.0 per cent stake individually by May 21, 2012.
Earlier, Articles of Association of respective companies would specify the required number of shares for each sponsor-shareholder, Advocate Ramzan Ali Sikder said, adding the Companies Act, however, stated the requirement of minimum one share.
"There was no provision on holding certain volume of shares by sponsor-directors collectively," he added.
As of June 4 2012, around 330 sponsor-directors of 99 listed companies were reportedly holding less than 2.0 per cent shares individually.
A significant number of them lost their posts and some others managed to remain in the board by holding 2.0 per cent shares individually in different ways, industry insiders said.
"The leaving of so many directors left the companies in the lurch and also gave negative message to the market as they were mainly professionals," a senior official of the Dhaka Stock Exchange (DSE) said.
However, the BSEC itself does not have enough information about the sponsor-directors, who lost their posts and the listed companies that have complies with the directive in question.
"We don't have accumulated statistics about it because of recording the relevant papers manually, not digitally," BSEC executive director and spokesperson Mohammad Saifur Rahman told the FE Monday.
When contacted, DSE deputy general manager (public relations & publications) M Shafiqur Rahman also said, "Currently, we don't have any such data."
Dr Mahmood Osman Imam, a professor of Finance at Dhaka University, said, "Overall, this regulatory directive had very little effect on the capital market because of some other dominating factors including the ongoing political uncertainty...."
Banks' obligation to limit their exposure to the market and fall in portfolio values of merchant banks and brokerage firms are also among the dampers, Mr Imam listed.
A high official of the DSE also saw the loss of directorship of many dedicated professionals as a blow to the respective companies and the market as well.
He, however, said that the directive was quite effective to create buyers in a bear market in 2011 by forcing the sponsor-directors to buy shares.
"Though ad hoc it was a right measure to boost the market. But, in the normal situation, the measure has the potential to hurt the market sentiment as it helps amassing of shares by the directors, especially in good companies, creating liquidity crisis in the market," he said.
The BSEC should have enforced the measure for a limited period of time, he felt. Â
An official also questioned the seriousness of the BSEC about the implementation of its own directive when it did not feel it necessary to maintain the relevant statistics.
In a query, BSEC spokesperson Mr Rahman said they "didn't make any review" of the end results of their measure relating sponsor-directors' share holding.
Market insiders also said that the non-settlement of cases against the directive and some cases against scamsters for long is also partially blocking the return of investors' confidence.
Sources in Supreme Court said that around a dozen cases against the BSEC directive to hold 2.0 per cent shares are still pending with its both divisions.
However, Mr Rahman said that only two cases are awaiting disposal.
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