A roadmap for the capital market
Saturday, 13 March 2010
Nasiruddin Ahmed Chowdhury
The stock market as an investment avenue is so highly volatile and risky that it requires transparent information, adequate training, updated information, analytical skill, investment technique etc. One involved in the market should recollect the memories of the tragic share market debacle of 1996 in Bangladesh. The prime reasons for it were inadequate knowledge, weak rules and regulations, poor governance, etc. Anomalies and uncertainty had halted the progress of the county's securities market in the past like other sectors which caused the havoc due to corruption, non-transparency and inefficiency.
There should be dynamic policies to avoid recurrence of the share market debacle.
By successfully mobilising funds from local sources through stock market, the government can reduce its dependency on foreign funds to finance its development activities. Decision can be taken to off-load certain percentage of government shareholding from various governments, private and multinational companies and to issue those shares to the public through the stock exchanges. It would be a very pragmatic step, which not only would increase the supply side but also brings depth to the market.
Foreign/ multinational companies including cell phone companies that are already doing their business profitably in Bangladesh should be persuaded into the stock market either by off-loading a portion of their shares to the public or by raising funds from the capital market. In some neighboring countries this is mandatory, but unfortunately it is absent in Bangladesh. This will certainly strengthen and increase the size of the market as well as ensure participation of the general people in national economic development.
During the fixed call rate system, brokers used to pay monthly Tk. 150/- as line rent plus a usage charge of Tk. 36/- (excluding VAT) to BTTB for logging in to CSE trading network. With the imposition of multi-metering system, brokers are required to pay around Tk. 2,500/- per telephone connection to BTTB each month. This big difference is affecting the brokers in their cash flow. As a measure of incentive to this important sector, we propose that the brokers' community should be kept outside the orbit of multi-metering billing system, as it has been waived for logging-in through the Internet Service Providers (ISPs).
To attract more entrepreneurs to raise their capital from the secondary market, a significant (at least 20%) corporate tax gap between listed and non-listed companies should be allowed.
Income Tax on dividend income above Tk. 25,000/- should be withdrawn to attract more investors in the market.
Necessary steps should be taken to penalise the companies enjoying tax holidays for failing to invest a portion of their tax-exempted income in the share market as directed under Section 46A of the Income Tax Ordinance 1984.
Establishment of a securities training institute has become essential for research and development of human resources in the different level of securities industry. The implementation process, under the supervision of Securities and Exchange Commission needs to be accelerated.
Inclusion of stock market knowledge in the primary, secondary and college level education is essential for developing the new generations with the knowledge of savings and investments.
Non Resident Bangladeshis (NRBs) have been contributing significantly to the economy of Bangladesh. Unfortunately, most of those funds are being utilised for consumption purposes and real estate investment, while only an insignificant portion of those funds are being used in the financial market for economic activities. Like other neighbouring countries (e.g. Pakistan and India), our NRBs should also be encouraged to place their funds directly in the capital market, which will certainly strengthen our overall financial market.
There is a provision laid down in 'Guidelines for Foreign Exchange Transactions, Volume-1' [Chapter 14, Section-I(4)] of Bangladesh Bank for securities transactions by non-residents through Non-resident Investors Taka Account (NITA). But practically, NRBs could not take the full advantage of these provisions due to some operational constraints/ requirements. We strongly believe, simplification of the same will bring significant flow of foreign currency in the country.
To develop our capital market, NRBs should be encouraged to actively participate in the secondary market by resolving the factors involved in transferring money with the banks. The issue needs to be addressed immediately. We hope, as soon as the fund transferring problems are resolved, CSE Internet Trading Module can perform effectively to channelise this money into the Bangladesh Capital Market.
Earlier brokers were allowed to do underwriting business for IPOs. From the year 2000, brokers having merchant banking licence can only do the underwriting business. To facilitate general brokers business, besides the merchant bankers, we propose that eligible brokers should also be allowed to do the underwriting business based on some criteria.
The debt-equity ratio guideline for the companies seeking large loans from commercial banks should be implemented soon, to compel them to invest a portion of it in the share market.
Allowing a handsome portion of the pension, provident and gratuity funds for investment in the capital market will certainly boost the market.
The stock market as an investment avenue is so highly volatile and risky that it requires transparent information, adequate training, updated information, analytical skill, investment technique etc. One involved in the market should recollect the memories of the tragic share market debacle of 1996 in Bangladesh. The prime reasons for it were inadequate knowledge, weak rules and regulations, poor governance, etc. Anomalies and uncertainty had halted the progress of the county's securities market in the past like other sectors which caused the havoc due to corruption, non-transparency and inefficiency.
There should be dynamic policies to avoid recurrence of the share market debacle.
By successfully mobilising funds from local sources through stock market, the government can reduce its dependency on foreign funds to finance its development activities. Decision can be taken to off-load certain percentage of government shareholding from various governments, private and multinational companies and to issue those shares to the public through the stock exchanges. It would be a very pragmatic step, which not only would increase the supply side but also brings depth to the market.
Foreign/ multinational companies including cell phone companies that are already doing their business profitably in Bangladesh should be persuaded into the stock market either by off-loading a portion of their shares to the public or by raising funds from the capital market. In some neighboring countries this is mandatory, but unfortunately it is absent in Bangladesh. This will certainly strengthen and increase the size of the market as well as ensure participation of the general people in national economic development.
During the fixed call rate system, brokers used to pay monthly Tk. 150/- as line rent plus a usage charge of Tk. 36/- (excluding VAT) to BTTB for logging in to CSE trading network. With the imposition of multi-metering system, brokers are required to pay around Tk. 2,500/- per telephone connection to BTTB each month. This big difference is affecting the brokers in their cash flow. As a measure of incentive to this important sector, we propose that the brokers' community should be kept outside the orbit of multi-metering billing system, as it has been waived for logging-in through the Internet Service Providers (ISPs).
To attract more entrepreneurs to raise their capital from the secondary market, a significant (at least 20%) corporate tax gap between listed and non-listed companies should be allowed.
Income Tax on dividend income above Tk. 25,000/- should be withdrawn to attract more investors in the market.
Necessary steps should be taken to penalise the companies enjoying tax holidays for failing to invest a portion of their tax-exempted income in the share market as directed under Section 46A of the Income Tax Ordinance 1984.
Establishment of a securities training institute has become essential for research and development of human resources in the different level of securities industry. The implementation process, under the supervision of Securities and Exchange Commission needs to be accelerated.
Inclusion of stock market knowledge in the primary, secondary and college level education is essential for developing the new generations with the knowledge of savings and investments.
Non Resident Bangladeshis (NRBs) have been contributing significantly to the economy of Bangladesh. Unfortunately, most of those funds are being utilised for consumption purposes and real estate investment, while only an insignificant portion of those funds are being used in the financial market for economic activities. Like other neighbouring countries (e.g. Pakistan and India), our NRBs should also be encouraged to place their funds directly in the capital market, which will certainly strengthen our overall financial market.
There is a provision laid down in 'Guidelines for Foreign Exchange Transactions, Volume-1' [Chapter 14, Section-I(4)] of Bangladesh Bank for securities transactions by non-residents through Non-resident Investors Taka Account (NITA). But practically, NRBs could not take the full advantage of these provisions due to some operational constraints/ requirements. We strongly believe, simplification of the same will bring significant flow of foreign currency in the country.
To develop our capital market, NRBs should be encouraged to actively participate in the secondary market by resolving the factors involved in transferring money with the banks. The issue needs to be addressed immediately. We hope, as soon as the fund transferring problems are resolved, CSE Internet Trading Module can perform effectively to channelise this money into the Bangladesh Capital Market.
Earlier brokers were allowed to do underwriting business for IPOs. From the year 2000, brokers having merchant banking licence can only do the underwriting business. To facilitate general brokers business, besides the merchant bankers, we propose that eligible brokers should also be allowed to do the underwriting business based on some criteria.
The debt-equity ratio guideline for the companies seeking large loans from commercial banks should be implemented soon, to compel them to invest a portion of it in the share market.
Allowing a handsome portion of the pension, provident and gratuity funds for investment in the capital market will certainly boost the market.