Getting stock market buoyant amid speculation

Finance Minister AMA Muhith recently said in parliament that the bourses have got rid of speculation due to reform struck in this sector. First of all, it is compulsory to discuss about this reform. Existing mutualisation in the country's two stock exchanges has been firmly neutralised since Mr Muhith was successful in convincing both Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) to accept the reforms and adopt de-mutualisation. As a result, the government has freed the bourses from the opportunistic oligarchy - influential members who used to control a board or council of the two stock exchanges as they were elected by general members of either DSE or CSE.
 Apparently, the president or chairman of a board was in possession of dictatorial powers over the entire stock exchange. Corporate administration was anathema to an oligarchic bureaucracy of the bourse. Besides, they used to treat the mid-level executives and regular employees like their 'personal servants'.  There was a time when DSE did not have a Chief Executive Officer (CEO). A company secretary was appointed on an annual basis so that he could be kept on his toes forever.
Moreover, relentless group feuds had existed among the members of the stock exchanges. Instead of introducing any reform or positive change, the infighting aimed at capturing powers. Sincere and talented executives were often used as baits in such power struggles regardless of their individual neutrality. Probably, the board of directors was too busy in realising their personal aspirations that they had failed to recognise the diligent contribution of the ordinary investors and meet their expectations. The Bangladesh rate of listing fees, compared to that of the neighbouring countries, is the highest in the region. It has extricated a huge amount of money from the listed companies. Neither this fund is used for welfare of the common investors nor for the officers and employees of the bourse.
Under the present circumstances, de-mutualisation is likely to transform the number of directors elected by the bourse members into a minority. Plus, the chairman will have to be elected from among the directors other than the elected directors of the stock exchange. Therefore, there is a great opportunity for introduction of corporate administration - sine qua non for good governance. Obviously, this depends on the knowledge and efficiency of the board in protecting the stock exchange from covert and overt conspiracies of the mischievous elements of the capital market. However, we should not deny the fact that the erroneous policy and attitude of the Ministry of Finance actually played a major part in the share market scandals of 2009-2010 and subsequently in the share market crash of 2011. The Ministry of Finance was misled by the erstwhile oligarchy of the stock exchanges. Perhaps, the Ministry has compensated that damage to some extent having been successful in de-mutualisation of the bourse. Nevertheless, there is no reason to be complacent about the supposition that this reform would ensure share trading sans speculation.
  Existence of speculation in a stock exchange is as old as the bourse itself.  
Naturally, the process of share trading attracts speculation. Benjamin Graham once wrote, "An investment operation is one which upon thorough analysis promises safety of principal and satisfactory return. Operations not meeting these requirements are speculative." It is to be noted that Graham used the word promises, not ensure. Maybe, there are promises but these may not be fulfilled. The word speculation means opining about something without knowing all the details. In fact, the adequate disclosure and full transparency of accounts of a listed company will help the investors to take proper decisions.
Furthermore, the Finance Minister has informed parliament that the proposed Financial Reporting Act will give the real picture of the accounts of the listed companies. Unfortunately, the enactment of this act is being delayed due to the acrimony between the Institute of Chartered Accountants of Bangladesh (ICAB) and the Institute of Cost and Management Accountants of Bangladesh (ICMAB). Both institutions have accused each other and claimed superiority. No organisation has the right to overlook the fact that the government should immediately pass and implement the law.   
The job of speculation should be always under surveillance of the regulatory   authority - Securities and Exchange Commission (SEC), stock exchange authorities and other concerned agencies. During the scandalous chapter in the history of our share market, the prices were experiencing meteoric rises. It has been painfully observed that some capital market experts did come forward with some ideas which rather helped spread speculation - the sky was the limit for price hike of a share. They even recommended for enormous flow of cash into the market.
 The Finance Minister holds the view that the share market of Bangladesh stands on a firm footing. The share market has been on proper track as it is moving with speed based on its strength. We believe that the authorities have earned adequate experience--both sweet and sour. They would not be misled in future by adulatory words as happened in the past. The board of directors of the bourses has been placed on a sound footing. This can always be on the right track and active without any hindrance.
rezaulparvaz@live.com