Bangladesh needs a separate OTC exchange
Monday, 1 February 2010
Mahbubur Rashid
STOCK market of Bangladesh had remained steady ever since the army-backed caretaker government came to power in January, 2007. Here is the apparent contradiction. The caretaker government launched crusade against corruption and they arrested a lot of politicians and businessman. As a result, the business community as whole became shaky. Presently, some people consider the period of caretaker government as the dark one for the business.
We know that the share market is very sensitive. Any adverse situation, particularly in the state level, may create havoc in the market. Sometimes even a guess or misconception may pull down the market. We may cite the example of happening in the Mumbai Stock Exchange in 2004. Congress won the election with the communist parties as coalition partners. Apprehending the state intervention Mumbai stock exchange crashed.
But this psyche did not work in Bangladesh. Both the stock exchanges of the country witnessed higher trade. After the elected government came to power, the share market had became bullish in nature. The daily trading average of Dhaka Stock Exchange (DSE) recently exceeded Tk. 15 billion (1500 crore). Of course, the media has always been ascribing the higher trade as record.
The share market of Bangladesh is burgeoning. More and more companies including the bigger ones from telecommunication and energy sector are likely to be added to the litany of listed companies. So long the share trading has been confined to Dhaka city and, to some extent, Chittagong. It may be mentioned that there is a stock exchange in Chittagong but the quantity of its trading amounts to 10 per cent of that of DSE. However, brokers are opening branches across the country. So it is expected that there will be phenomenal growth of investors. If all these factors move positively there is no reason why the daily trading will not rise to Tk 30.00-Tk 50.00 billion (three to five thousand crore takas) within a span of two to three years. Thereafter, we may think of commenting on record.
However, even in this stable situation of the market sometimes the share market gets jittery and investors become restive. It is natural that such a rise-and-fall will always occur in the market. There is no denying the fact that there are some corporate shenanigans who will do mischief. But there is no dearth of their compatriots in the other sectors of the securities markets. Neither the Securities and Exchange Commission (SEC) nor the DSE bears in mind the need for ensuring profit to the investors.
The investors themselves are likely to be aware of their responsibilities. They should know the fundamentals of a company before investment. That is why a section of market experts believe that most of the investors in the share market should be considered as caveat emptor and they are not supposed to have any sympathy.
Probably believing in the generalisation theory, the authority has incriminated Z-group companies for such a situation. But this is a wrong proposition. The total paid-up capital of Z Group companies amounts to 3.0-4.0 per cent of the total capital of the DSE.
So it is unlikely that these companies can influence the trade in such a big way. However the possibility of playing ingenious trick by some brokers can not be ruled out. The companies that do not pay any dividend or do not hold annual general meeting (AGM) regularly or violate any other major rule of a stock exchange are dumped in Z-group. They are not likely to be allowed to stay in such a situation for long. The SEC has framed necessary rules for disposal of these kinds of companies. After their inclusion in this group the board of directors are to be re-constituted and this board is likely to take various steps such as improvement of trading, merger and acquisition or winding up as the situation may demand.
Unfortunately, such rules are not followed. The SEC has permitted Dhaka Stock Exchange (DSE) to run over-the-counter (OTC) market for trading of shares of the Z-group. But the charter of OTC market speaks different. These are is as follows: a) The issuer of an unlisted or delisted security shall apply to the exchange, as designated by the commission, through a stock-dealer/stock-broker in the form prescribed by the exchange for availing the OTC facilities for buying or selling of such security on payment of prescribed fee, etc.,, to the exchange: (2) The companies which have not offered securities for public subscription but have issued securities with the consent of, or deemed to have obtained consent from, the commission, shall be eligible for availing OTC facilities subject to the following conditions; (a) the paid-up capital of the companies shall be at least Taka 10 million (1.0 crore); (b) they are regular in holding annual general meetings; and (c) there are no accumulated losses; (3) The exchange shall also provide OTC facilities to any issuer of an unlisted or delisted security as directed by the Commission. To run an OTC market in such a stop-gap arrangement is neither considered healthy nor desirable.
In most countries, OTC market is operated by a separate management. In neighbouring India, OTC market, known as OTCE of India, is a separate company and all the sponsored directors are either banks or financial institutions. If the responsibility of running an OTC market is entrusted to a stock exchange, the question of conflict of interest is sure to crop up; moreover, the main function of OTC market is not to trade with delisted companies. Since some companies may not qualify to be listed with stock exchange because of stiff rules and regulations, they are supposed to approach OTC market for listing.
If any delisted company of a stock exchange wants to be in the OTC market, it is to comply with the rules and regulations of OTC exchange and no special consideration as delisted companies.
The SEC of Bangladesh should think anew. They should rescind the present rules for OTC market and take steps for establishing a separate company to be known as OTC exchange of Bangladesh.
We believe that there will be very positive response from financially institutions for establishing an OTC exchange. In this connection, it may be mentioned that OTC exchange will have the transparency of activities like any stock exchange.
STOCK market of Bangladesh had remained steady ever since the army-backed caretaker government came to power in January, 2007. Here is the apparent contradiction. The caretaker government launched crusade against corruption and they arrested a lot of politicians and businessman. As a result, the business community as whole became shaky. Presently, some people consider the period of caretaker government as the dark one for the business.
We know that the share market is very sensitive. Any adverse situation, particularly in the state level, may create havoc in the market. Sometimes even a guess or misconception may pull down the market. We may cite the example of happening in the Mumbai Stock Exchange in 2004. Congress won the election with the communist parties as coalition partners. Apprehending the state intervention Mumbai stock exchange crashed.
But this psyche did not work in Bangladesh. Both the stock exchanges of the country witnessed higher trade. After the elected government came to power, the share market had became bullish in nature. The daily trading average of Dhaka Stock Exchange (DSE) recently exceeded Tk. 15 billion (1500 crore). Of course, the media has always been ascribing the higher trade as record.
The share market of Bangladesh is burgeoning. More and more companies including the bigger ones from telecommunication and energy sector are likely to be added to the litany of listed companies. So long the share trading has been confined to Dhaka city and, to some extent, Chittagong. It may be mentioned that there is a stock exchange in Chittagong but the quantity of its trading amounts to 10 per cent of that of DSE. However, brokers are opening branches across the country. So it is expected that there will be phenomenal growth of investors. If all these factors move positively there is no reason why the daily trading will not rise to Tk 30.00-Tk 50.00 billion (three to five thousand crore takas) within a span of two to three years. Thereafter, we may think of commenting on record.
However, even in this stable situation of the market sometimes the share market gets jittery and investors become restive. It is natural that such a rise-and-fall will always occur in the market. There is no denying the fact that there are some corporate shenanigans who will do mischief. But there is no dearth of their compatriots in the other sectors of the securities markets. Neither the Securities and Exchange Commission (SEC) nor the DSE bears in mind the need for ensuring profit to the investors.
The investors themselves are likely to be aware of their responsibilities. They should know the fundamentals of a company before investment. That is why a section of market experts believe that most of the investors in the share market should be considered as caveat emptor and they are not supposed to have any sympathy.
Probably believing in the generalisation theory, the authority has incriminated Z-group companies for such a situation. But this is a wrong proposition. The total paid-up capital of Z Group companies amounts to 3.0-4.0 per cent of the total capital of the DSE.
So it is unlikely that these companies can influence the trade in such a big way. However the possibility of playing ingenious trick by some brokers can not be ruled out. The companies that do not pay any dividend or do not hold annual general meeting (AGM) regularly or violate any other major rule of a stock exchange are dumped in Z-group. They are not likely to be allowed to stay in such a situation for long. The SEC has framed necessary rules for disposal of these kinds of companies. After their inclusion in this group the board of directors are to be re-constituted and this board is likely to take various steps such as improvement of trading, merger and acquisition or winding up as the situation may demand.
Unfortunately, such rules are not followed. The SEC has permitted Dhaka Stock Exchange (DSE) to run over-the-counter (OTC) market for trading of shares of the Z-group. But the charter of OTC market speaks different. These are is as follows: a) The issuer of an unlisted or delisted security shall apply to the exchange, as designated by the commission, through a stock-dealer/stock-broker in the form prescribed by the exchange for availing the OTC facilities for buying or selling of such security on payment of prescribed fee, etc.,, to the exchange: (2) The companies which have not offered securities for public subscription but have issued securities with the consent of, or deemed to have obtained consent from, the commission, shall be eligible for availing OTC facilities subject to the following conditions; (a) the paid-up capital of the companies shall be at least Taka 10 million (1.0 crore); (b) they are regular in holding annual general meetings; and (c) there are no accumulated losses; (3) The exchange shall also provide OTC facilities to any issuer of an unlisted or delisted security as directed by the Commission. To run an OTC market in such a stop-gap arrangement is neither considered healthy nor desirable.
In most countries, OTC market is operated by a separate management. In neighbouring India, OTC market, known as OTCE of India, is a separate company and all the sponsored directors are either banks or financial institutions. If the responsibility of running an OTC market is entrusted to a stock exchange, the question of conflict of interest is sure to crop up; moreover, the main function of OTC market is not to trade with delisted companies. Since some companies may not qualify to be listed with stock exchange because of stiff rules and regulations, they are supposed to approach OTC market for listing.
If any delisted company of a stock exchange wants to be in the OTC market, it is to comply with the rules and regulations of OTC exchange and no special consideration as delisted companies.
The SEC of Bangladesh should think anew. They should rescind the present rules for OTC market and take steps for establishing a separate company to be known as OTC exchange of Bangladesh.
We believe that there will be very positive response from financially institutions for establishing an OTC exchange. In this connection, it may be mentioned that OTC exchange will have the transparency of activities like any stock exchange.