IMF suggestion on stock market stabilisation

The current sordid state of the country's stock market largely originates from lax monitoring and unwarranted external interference in the normal activities of the Securities and Exchange Commission (SEC). Two visiting senior economists of the International Monetary Fund (IMF) last Sunday, during their meeting with the top policymakers of the securities regulatory body, exactly pointed out the weaknesses and laid emphasis on ensuring independence of the SEC and improving its market monitoring and surveillance capability. At the same time, they wanted the regulatory bodies operating in the money and capital markets to maintain effective coordination. None, possibly, would contest the fact that the SEC did fail to carry out its job properly when signs were pretty strong that the market was heading towards a crash. Instead of taking appropriate measures to cool off an overheated market at the right time, the regulator, allegedly, worked hand in glove with market manipulators to create a bubble. A case in point is the granting of permission indiscriminately to open branches of brokerage houses in districts across the country to involve more and more ignorant retail investors. Thus, what could be a Dhaka or Chittagong centric market collapse turned out to be a countrywide one. Despite the fact that manpower and logistics available with the SEC is not enough even to properly monitor the activities of all the brokerage houses located in Dhaka and Chittagong, it helped the market spread to an unmanageable level. In fact, when the market desperately needed measures to calm it down, the regulator, deliberately or otherwise, preferred to look other way. If that was not the case, how could it fail to notice the irregularities, mentioned in the report of the probe committee, headed by Khandaker Ibrahim Khaled? If the four-member probe body could detect so many wrongdoings in share market operation, it is hard to believe that the immediate past policymakers at the securities regulator were not in the know of things. It is not the SEC alone, the money market regulator, the Bangladesh Bank (BB), had to share part of the blame for the stock market collapse since it overlooked the banks' exposure to share market--- a good number of banks had their funds invested well beyond the permissible limit and contributed to the market going haywire. Thus the need for both the securities and money market regulators maintaining an effective coordination for the interest of a stable stock market cannot be overemphasised. During the period between 2009 and 2010 when the bubble was building up in the stock market, the much-needed coordination between the two regulators was virtually absent. Rather when the central bank, though belatedly, had tried to correct the banks' over-exposure, it came under intense criticism from different quarters because the withdrawal of banks made the fall of the market even speedier. The issue of SEC's independence is more important than anything else as interference by vested quarters using the power and influence of men in authority can help trigger an unwanted situation in the market. The Securities and Exchange Ordinance of 1969 and the Securities and Exchange Commission Act of 1993 give enough power to the SEC but an amendment brought in the year 2000 to the 1993 Act has made the Commission virtually subservient to the government. There is no denying that unfettered power without necessary check and balance tends to corrupt any organisation. But frequent interferences in the regulatory affairs create more problems than can solve. The latest stock scam is a glaring example to this effect. So, greater regulatory independence, better coordination among regulatory bodies concerned and effective monitoring of the market hold key to stabilising the stock market and ensuring its desired growth.