There should be no scope for much speculations in stock market: MCCI

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FE Report
The Metropolitan Chamber of Commerce and Industry (MCCI) Thursday said there remains scope for more speculations in stock market, which may lead to bubbles in share prices.
"The stock indices go up. But they are not rising on basis of company fundamentals. We do not want to see any more bubble like in the past. The securities regulator should be more vigilant in this regard," said Latifur Rahman, president of the MCCI.
His comments came at a meeting with chairman of the Securities and Exchange Commission (SEC) Faruq Ahmad Siddiqi in the conference room of the MCCI in the city.
He also said that the stock exchanges' number of transactions reportedly is in excess of 80,000 deals per day.
In comparison, the Bombay Stock Exchange and the Karachi Stock Exchange, which have much larger capitalisation than our exchanges reportedly, have trades numbering 70,000 and 10,000 respectively.
"We, therefore, have a much smaller value per trade than the regional exchanges. This also means that there is scope for more speculations, which may lead to bubbles in share prices," Latifur warned.
The MCCI chief however, said: "We want to see the capital market as a major source of the capital mobilisation."
President of International Chamber of Commerce-Bangladesh (ICCB) Mahbubur Rahman, President of Dhaka Chamber of Commerce and Industry (DCCI) Hossain Khaled, president of Foreign Investors' Chamber of Commerce and Industry (FICCI) Waliur Rahman Bhuiyan, president of Bangladesh Employers' Federation Kamran T Rahman, vice-president of MCCI Abdul Hafiz Choudhury and Nihad Kabir of MCCI also spoke on the occasion.
The SEC chairman sought the cooperation from the MCCI members in attracting more big companies into the stock market.
"I am ready to take suggestion from you about IPO pricing that needs to be reviewed," he said.
"IPO pricing should be determined in such a way that both the entrepreneurs and the investors are benefited," SEC chief said adding he welcomes any suggestion on IPO pricing method.
The MCCI said: " presently, well-performing companies/firms feel that the existing IPO pricing method does not ensure fair prices to them and it needs to be changed to encourage public issues."
"It is the retail investors who benefit from the prevailing pricing system more than the sponsors/owners of successful companies. We welcome the current attitude of the SEC, particularly that of the chairman, for ensuring fair price to the entrepreneurs who come forward with quality shares. For this, we support introduction of Book-Building method of IPO pricing, which is being considered to solve the problem," the MCCI said.
The leading chamber of the country said that strengthening of capital market, which has been sought during the last several years, will get momentum once the Book-Building method is introduced.
Besides, the recent initiative by the SEC to allow direct listing of some companies seems to have been well received by both the market and the issuers. Pro-active steps, such as this, demonstrate the SEC's willingness to adopt market mechanisms, moving away from the traditional IPO pricing methodologies, according to MCCI.
"The SEC is trying to rationalise the policy on floating of shares by public limited companies. We don't impose compulsion on anybody to go public," the SEC chief said
"It is natural that the SEC, the stock exchanges and the trade bodies representing publicly listed companies should work closely to safeguard the interests of both the issuers and shareholders," the MCCI said.
The MCCI demanded that the notification dated February 8 of 2006 regarding the conversion of private limited companies to public limited companies and public limited companies into publicly listed companies, should be reviewed.
"The requirement that a private limited company needs to go public if its paid up capital exceeds Tk 400 million and public limited company to make a public offering of at least 30 per cent if its paid-up capital exceeds Tk.500 million is retrogressive".
"We reiterate our earlier proposal that there should not be any such compulsion. Well-performing private limited companies will go public when there is incentive for the same. Similarly, public limited companies will go for public offering if there is adequate financial incentive. Public listing involves a high level of corporate governance and disclosures," Latifur Rahman said.
These can be better ensured through voluntary compliance than compulsion, he added.
The MCCI chief said the merchant banks need to be strengthened.
"We strongly urge that a proper training institution should be set up which will impart training to the professionals of merchant banks as well as others involved in the securities market. Given proper capacity building, merchant banks can play a greater role in bringing savings of small investors including those of the non-resident Bangladeshis (NRBs) in the investment market," he said.
Faruq Ahmad Siddiqi said there might be several reasons like family ownership, lack of knowledge about the stock market and fear of proper disclosure behind the reluctance of the private companies to float shares.
He said: "Bangladesh Bank is also in favour of raising capital from the stock market rather than taking loan from the banks. To get fund for the business expansion IPO is the best way as far as cost is concerned.
He said there is a 10 per cent gap in the rates of corporate tax for listed company and non-listed company, but nobody is taking the opportunity of this benefit. "I am surprised why they (companies) are reluctant to come to the market as raising capital is more cheaper than taking loans from the banks," he said.
He also urged the merchant bankers to bring more issues into the capital market. "Merchant bankers are more interested to invest in the secondary market rather than bringing new issues in the stock market," he added.
He regretted that private sector is lagging behind in boosting the supply side. Whereas, the government is making effort to increase the supply of quality shares in the market, he added.
The demand for shares have pushed the market up that does not have any relation with the company fundamentals, because the market lacks quality shares, he said hoping the government will offload more quality shares into the market over the next six months.
The ICC-Bangladesh president, Mahbubur Rahman, said a conducive environment should be created to woo the private sector into the capital market, rather than imposing any regulation.
"The SEC should restore confidence among the entrepreneurs before asking them to go public," he said.
He said: "The SEC can intervene in the market when the share prices go abnormally high. About half of the listed companies are performing badly in the stock market. In this case, the SEC intervention is also needed to streamline the capital market."
The SEC should also look into why the Z-category issues are allowed to be traded, he added.
Mahbub also suggested that listing requirements should be easier so that more entrepreneurs become interested to float shares. He said: "We should also make a devise to attract the foreign companies to float shares in the local market."