Experts call for overhauling SEC

The government must overhaul the Securities and Exchange Commission (SEC) and man it with efficient and honest officials in an effort to avoid repeat of the recent share market scams, experts said Thursday. They said collaboration by a section of the SEC officials and negligence on the part of the regulator were behind most of these scams that defrauded innocent investors and shook the country's financial system. "As many as 90 per cent scandals occurred in the capital market were due to collaboration of and negligence by the SEC officials," said Professor Salauddin Ahmed Khan, former CEO of the Dhaka Stock Exchange (DSE). Prof Salauddin blamed the SEC members for their failure to take timely action needed to rein in an overheated market and safeguard small traders' hard-earned investment. "It is the job of the SEC to protect the investors. But unfortunately, most of the officials of the SEC had links with major brokerage houses, which is a major problem of our stock market," he said. He did not name anyone but said the unhealthy business link between SEC officials and the brokerage houses is rampant to the point that it was now threatening the foundation of the market. Former SEC Chairman and finance adviser Mirza Azizul Islam also obliquely questioned the integrity of the SEC officials, saying they should be "efficient, honest and have strong personality." "If we cannot hire efficient and honest persons in the SEC, it will not be possible to safeguard ordinary investors' interest," he said. Mirza Aziz also criticised frequent changes of the directives and orders by the regulator, saying these moves contribute to volatility in the market and eventually affect millions of small investors. "In the last twelve months alone, the SEC issued 89 directives. At least 19 of these orders were related to margin loan," he said. He said the SEC last year approved initial public offerings (IPOs) with a price-earning ratio of 70 or 80, which was "extremely high" and "beyond the companies' fundamentals". "The standard PE ratio should be within 15-20," Mirza Aziz said. He also underscored the need for strengthening the surveillance system of the stock market and urged the investors to be cautious before investing their entire savings in shady firms. He also said the institutional investors and asset managers also did not play their due roles in protecting investors, which led to unusual overvaluation of the market. They were speaking at a roundtable discussion on "the recent situation in the capital market and how to overcome the crisis". It was organised by Sujan, a civil society charity, at the National Press Club in the capital. Sujan president Dr Badiul Alam Majumder moderated the roundtable, while Dr Khandker Golam Moazzem, senior research fellow of the Center for Policy Dialogue (CPD) presented the key-note paper. Salauddin pointed out that big speculators got chance to fleece the retail traders and siphon off the money from the market, cashing in on the investors' tendency to make short-time profit. Abu Ahmed, a professor of economics at Dhaka University, blamed lack of effective market surveillance for the recent market debacle. He said the SEC allowed some rogue companies and issue managers to manipulate the book-building method despite it is known as the best method to valuate a company.