Indifferent regulator
Shamsul Huq Zahid | Monday, 30 June 2008
Opening of a beneficiary account (BO) is a must for an investor willing to apply for primary shares or to take part in trading in the secondary market. Such a requirement has been made mandatory by the capital market regulator, the Securities and Exchange Commission (SEC), by law for the sake of transparency in stock trading.
But, of late, the regulator has started punishing the BO account holders for reasons best known to it. In the name of weeding out fake BO accounts, it has resorted to whimsical decisions, causing loss to investors, in terms of both time and.
The latest example of SEC whims relates to the submission of bank certificates by BO account holders. The SEC several months back, through a notification, asked each of the BO account holders to submit certificates from his or her banks stating account number, names of parents etc., to their respective stock brokers. The deadline for submission of such certificates, according to the notification, was scheduled to expire today. But it has not. On June 26 last, the SEC was kind enough to extend the deadline to September 30 next. It said a BO account holder can also submit the photocopy of his or her national identity card instead of bank certificate.
The change in SEC decision was too late to save the BO account holders from hassles that they have faced while procuring bank certificates. Rather it has caused financial losses to such account holders. Assuming that all the BO accounts-nearly 1.5 million-- are genuine and an account holder had to pay on an average Tk. 200 to his or her bank for a certificate, the total financial loss caused to investors would stand at around Tk. 300 million (30 crore). Taking advantage of the situation some banks charged their clients exorbitantly for issuing bank certificates. The fees charged by banks ranged from Tk. 100 to Tk 1200. The SEC decision on time extension and submission of national ID cards has come so late that it has failed to provide any relief to the BO account holders. The genuine account holders have already procured the bank certificates at the cost of both money and time. Many genuine account holders even decided to forego their accounts to avoid the hassles of collecting bank certificates.
However, ingenuity of some people has saved some BO account holders from hassles. These people readily supplied fake bank certificates to BO account holders at a cost of only Tk. 50 or less. An account holder had to tell them only the name of the bank and the account number. They did the rest.
The sufferings of the BO account holders were reported in the media, including this paper, several weeks back. But the SEC has revised its earlier decision only at the last moment. Thus, the capital market regulator has again proved that it is not anyway different from other public sector entities where people concerned developed the habit of delaying decisions, unnecessarily. But the regulator, apparently, does often fail to realise the fact that on its decisions depend a lot as far as the stock market is concerned. It has to be prompt, efficient and careful in decision making.
When investors were asked to open BO accounts after the introduction of electronic transfer of shares, the SEC failed to foresee the outcome of its careless attitude towards the opening of such accounts. Thousands of fake BO accounts were opened with the objective of taking part in IPO subscription. It was, however, an open secret then. Yet the regulator preferred to remain indifferent. But it could not ignore the problem anymore when a private bank resorted to the use of fake BO accounts to take away a big chunk of the primary shares that it floated through an IPO. Following the detection of such an irregularity, the SEC tried to be stringent in the matter of BO account. But still there are thousands of fake BO accounts. The regulator does need to find out actions to eliminate those without creating problems for genuine BO account holders.
The mutual funds are yet another example of lackadaisical attitude of the capital market regulator. When the Investment Corporation of Bangladesh (ICB) floated the first mutual fund, the regulator did not bother to introduce a defined set of guidelines for anyone wanting to float a mutual fund, an important investment tool in the stock market. The regulator cannot shirk its responsibility by saying that the mutual fund at that time was a new thing and, hence, we did not want to restrict its growth through all those rules and regulations. And the ICB since then has floated mutual funds one after another. With the expansion of the market, some private mutual funds also have been floated. But the inevitable has come to the fore. A lot of questions are being asked about the mutual funds these days. Why should not close-end mutual funds have definite maturity time? How can a mutual fund issue right or bonus share?
The SEC, though belatedly, has decided to address all those questions. It has taken decision in principle to amend the mutual funds rules restricting the close-end mutual funds from declaring right or bonus shares.
The rules relating to the mutual funds need to be updated in line with other countries, including our giant neighbour, India, since the mutual funds are the most popular and relatively safe investment options for the investors. The SEC needs to give up the habit of addressing problems on an ad-hoc basis and try to look at most issues in broader perspective before taking any decision.
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But, of late, the regulator has started punishing the BO account holders for reasons best known to it. In the name of weeding out fake BO accounts, it has resorted to whimsical decisions, causing loss to investors, in terms of both time and.
The latest example of SEC whims relates to the submission of bank certificates by BO account holders. The SEC several months back, through a notification, asked each of the BO account holders to submit certificates from his or her banks stating account number, names of parents etc., to their respective stock brokers. The deadline for submission of such certificates, according to the notification, was scheduled to expire today. But it has not. On June 26 last, the SEC was kind enough to extend the deadline to September 30 next. It said a BO account holder can also submit the photocopy of his or her national identity card instead of bank certificate.
The change in SEC decision was too late to save the BO account holders from hassles that they have faced while procuring bank certificates. Rather it has caused financial losses to such account holders. Assuming that all the BO accounts-nearly 1.5 million-- are genuine and an account holder had to pay on an average Tk. 200 to his or her bank for a certificate, the total financial loss caused to investors would stand at around Tk. 300 million (30 crore). Taking advantage of the situation some banks charged their clients exorbitantly for issuing bank certificates. The fees charged by banks ranged from Tk. 100 to Tk 1200. The SEC decision on time extension and submission of national ID cards has come so late that it has failed to provide any relief to the BO account holders. The genuine account holders have already procured the bank certificates at the cost of both money and time. Many genuine account holders even decided to forego their accounts to avoid the hassles of collecting bank certificates.
However, ingenuity of some people has saved some BO account holders from hassles. These people readily supplied fake bank certificates to BO account holders at a cost of only Tk. 50 or less. An account holder had to tell them only the name of the bank and the account number. They did the rest.
The sufferings of the BO account holders were reported in the media, including this paper, several weeks back. But the SEC has revised its earlier decision only at the last moment. Thus, the capital market regulator has again proved that it is not anyway different from other public sector entities where people concerned developed the habit of delaying decisions, unnecessarily. But the regulator, apparently, does often fail to realise the fact that on its decisions depend a lot as far as the stock market is concerned. It has to be prompt, efficient and careful in decision making.
When investors were asked to open BO accounts after the introduction of electronic transfer of shares, the SEC failed to foresee the outcome of its careless attitude towards the opening of such accounts. Thousands of fake BO accounts were opened with the objective of taking part in IPO subscription. It was, however, an open secret then. Yet the regulator preferred to remain indifferent. But it could not ignore the problem anymore when a private bank resorted to the use of fake BO accounts to take away a big chunk of the primary shares that it floated through an IPO. Following the detection of such an irregularity, the SEC tried to be stringent in the matter of BO account. But still there are thousands of fake BO accounts. The regulator does need to find out actions to eliminate those without creating problems for genuine BO account holders.
The mutual funds are yet another example of lackadaisical attitude of the capital market regulator. When the Investment Corporation of Bangladesh (ICB) floated the first mutual fund, the regulator did not bother to introduce a defined set of guidelines for anyone wanting to float a mutual fund, an important investment tool in the stock market. The regulator cannot shirk its responsibility by saying that the mutual fund at that time was a new thing and, hence, we did not want to restrict its growth through all those rules and regulations. And the ICB since then has floated mutual funds one after another. With the expansion of the market, some private mutual funds also have been floated. But the inevitable has come to the fore. A lot of questions are being asked about the mutual funds these days. Why should not close-end mutual funds have definite maturity time? How can a mutual fund issue right or bonus share?
The SEC, though belatedly, has decided to address all those questions. It has taken decision in principle to amend the mutual funds rules restricting the close-end mutual funds from declaring right or bonus shares.
The rules relating to the mutual funds need to be updated in line with other countries, including our giant neighbour, India, since the mutual funds are the most popular and relatively safe investment options for the investors. The SEC needs to give up the habit of addressing problems on an ad-hoc basis and try to look at most issues in broader perspective before taking any decision.
[email protected]