BSEC acts: Better late than never

Bangladesh Securities and Exchange Commission (BSEC), the regulator of our securities market, has imposed fines on Ghulam Mustafa and Alhaj Mosaddek Ali Falu of   Tk 30 million and Tk 10 million respectively for their alleged involvement in unusual manipulative share transactions. BSEC stated that the fines had been imposed on them after investigations twice in line with the recommendations made by the probe body led by Khondaker Ibrahim Khaled.
After the sensational share scam that occurred in 2009-2010, the government formed a committee headed by senior banker Khondaker Ibrahim Khaled. He was assisted by Dr. Towfiq Ahmed Chowdhury, DG, Bangladesh Institute of Bank Management (BIBM), and Mohammed Abdul Bari FCA, former president of ICAB, as members of the committee in the job of enquiring into the scam and also offering recommendations, besides suggesting measures to be taken. The committee was formed in January, 2011.
After submission of the report, it took a considerable period of time to see it published. The reasons were not known. About the report it can be said that the chairman of the probe committee, along with the two members, put in his all-out efforts to go thoroughly into all the relevant papers; and prepared a comprehensive analysis. The committee has suggested some measures. The authorities concerned took some prompt steps like reconstituting BSEC. But the measures to punish  the persons involved in the share market shenanigans  have been unusually put off,  for which a lot of excuses  were  made. Although it was a tip of the iceberg, the action for imposing the fines, though belated, should be hailed. During the share market scam in 1996 and that in 2009-2010, thousands of innocent investors lost their money, with many becoming virtual paupers. The British weekly The Economist appropriately headlined the disasters on both occasions as 'Slaughter of the Innocent'. This scribe has worked for the Dhaka Stock Exchange for long.
The other day, Syeda Shahana Karim of Mirpur approached this writer to tell him that she had bought shares amounting to Tk 1.8 million at higher prices in 2009-2010. A few months ago she sold the entire lot at Tk 200,800 (2.80 lakh.  Emdadul Haq, a young medicine dealer at Paribagh in the capital, invested Tk one million (10 lakh) at that time, and presently he can get Tk 200,000 (2 lakh) by disposing of those shares. They are many others who incurred such loss. To speak the truth, thousands of innocent investors have long been silently suffering the pain of their monetary losses. Nobody knows when they will overcome their trauma. The most appalling aspect of the tale is that many of them have invested in shares by borrowing money either from an institution or at personal level. They may have forgotten the wise words for the time being: "Buying shares with loan money is a deadly sin".
Nevertheless, the scams created a class of nouveaux rich in some areas of the market like that of brokers, share traders and sponsors. Ibrahim Khaled's report has candidly mentioned that during the euphoria in the share market in 2009-2010, most of the bank officials flocked to the   trading screen, keeping aside their assigned jobs.
Recently the BSEC has taken some laudable decisions on the IPO fund use and   transfer of shares. The regulator will have to always remain alert in order to identify the loopholes in the share market and prevent the marauders from entering the market. Trading in shares and securities is a non-productive operation. It does not create any wealth to be added to the GDP (gross domestic product). But the stock market can cause serious haemorrhage to the investors with crippling effect.
Let us now discuss some of the BSEC decisions. From now on, no listed company will be allowed to utilise more than one-third of the funds it would raise through initial public offering (IPO) for the purpose of loan repayment. Easy availability of the funds for loan repayment may tempt the sponsor/director into irresponsible borrowing with a view to achieving 'mischievous' goals.  No issuer of a listed security shall take decisions to issue rights share within two years from the date of the publication of prospectus for IPO and full utilisation of the funds raised through IPO.
In this connection, we may refer to an incident how a liberal decision was misused. Before the advent of the Securities and Exchange Commission (SEC), the affairs of the share market were looked after by the Controller of Capital Issue (CCI), a Joint Secretary at the Ministry of Finance in charge of the investment wing. Under the Capital Issue Act, permission was required from CCI for the issue of rights shares. In 1992, the then CCI withdrew the requirement; and the matter was left for the decision of the company concerned.  Thereafter, a company issued rights shares at a ratio of 1:125, that is, 125 rights shares against one principal share.  SEC later restricted the number to 10 (ten) maximum. As per the fresh conditions, a three-year lock-in will be imposed on the shares transferred by the existing sponsors or directors to any person other than the existing shareholders. This condition will be applicable to the case of shares transferred within 12 preceding months from the date of submission of the application for capital raising on public affairs. This will block the chance of Benami transfer of shares to one's accounts by the unscrupulous sponsors/ directors.
BSEC now seems to be very careful about the market movement. Worth noting that Awami League's coming to power was followed by share market debacles on both the occasions. Some people thought the current tenure would also see another spell of share price hike.
That did not happen. The BSEC has been watchful this time and taken necessary steps whenever there was any indication of unusual buoyancy in the market. The regulator has been able to stave off such a phenomenon until now.  One hopes that the BSEC would advise the investors: "Do not buy shares at a very high price, and it is the shares of the companies of strong fundamentals that should be bought only."
BSEC should better keep in mind the comment of Arthur Levitt, former chairman of the US SEC, "Arguments that self-regulation  will keep accountants,  stock exchanges and brokerage  firms  working in investors' best interest  have been proven naive."
BSEC's responsibility cannot be bartered.

rezaulparvaz@live.com