Intel report suggests 18pt stepsto resuscitate stock market

Nazmul AhsanAn intelligence report has blamed the central bank, the securities regulator and "dishonest" sponsor-directors for the recent stock debacle, saying the market needs radical steps such as waiver or reschedule of interest on margin loans to revive its flagging fortune. The report, a copy of which has been obtained by the FE, comes up with an 18-point suggestion to stabilise the plunging market including slowing down the legal action against the suspected scamsters in an effort to steer stocks out of the red-zone. In a scathing critique on the forces it believes were behind the market crash, the report called for punitive action against the errant merchant banks, saying these financial institutions are not playing their due roles to boost trading. The report pinpointed the blame for the market debacle on the Bangladesh Bank, the Securities and Exchange Commission (SEC) and the greedy investors who did not think twice to invest their life-long savings on junk shares. It said the immoral activities of sponsor-directors of the listed companies in 2009 and 2010 also had a "significant role" in spiking share prices abnormally during the period, when the benchmark DGEN index gained more than 80 percent a year. Citing SEC data, it said the sponsor directors took away Tk 24.27 billion from the market in the 2010-2011 fiscal year by selling parts of their stakes at high prices. It asked the authorities to force these directors to invest at least 30 per cent of their firms' paid-up capital in the market as part of new measures to rescue the dipping bourses. The report suggested that the SEC shorten the duration of lock- in period for placement shares in order to boost liquidity flow in the fund-starved exchanges. The similar practice of loan rescheduling by scheduled banks may be introduced by the merchant banks and brokerage houses for margin loan defaulters, the report said. "Initiative may be taken to waive the interest of margin loans for a particular period," according to the report, which has been sent to Prime Minister's Office (PMO), recently. The report by a key intelligence agency also called for introducing two-day duration for share transaction settlement from the current three days, simplification of netting system and reducing charges of CDBL (Central Depository Bangladesh Ltd) by a third. Among other key measures, it suggested a move to stop forced-sale of distressed portfolio, buying back share by directors of listed companies at fixed prices and lifting all existing taxes from the earnings to be generated from the mutual funds. It asked the authorities to take punitive action against the rogue merchant banks, who benefited from the market when the index was abnormally high but are now shying away, and consider issuing new merchant bank licenses in a bid to bump up competition. The dossier also called for government policies to help invest a significant portion of reserve funds of scheduled banks in the capital market and undertaking efforts to invest life insurers' Life Fund worth billions of taka in stocks. Quoting BB statistics, it said scheduled banks earned one-third of their operating profits, or Tk 29.39 billion, from the share market in 2010. Of the total, private commercial banks (PCBs) alone earned Tk25.59 billion, which they kept as reserve. "The reserve fund worth Tk 25.59 billion may be invested in the share market to (pump up) liquidity and (revitalise) the moribund market," reads the report. The report said BB should ask all scheduled banks to invest 10 per cent of their liabilities in the capital market. The aggregate investment of banks in the capital market as of October 15 was less than four per cent, a BB high official said. The report also recommended a slow-down in legal action against the individual and institutional investors who have been accused of manipulating the market during the December-January crash. Such "slowing process" may be taken in phases in the interest of market stabilisation, the report said. The report suggested humane handling of the retail investors who have staged sit-ins and demonstrations to protest the debacle. It said the law-enforcing agencies should not be "rude" at the agitating small investors. The report also backed a government move to woo undisclosed, or so-called black, money in the stock, urging the authorities to make an announcement assuring these money holders that they would not face any harassment from any agencies. It said an increase in the Statutory liquidity Requirement (SLR) and Cash Reserve Ratio(CRR) by 0.5 per cent by the central bank earlier this year caused liquidity crisis in the market. The report suggested the top officials and dignitaries make "sensible remarks and statements" on share market taking into account sensitivity of its nature. Blaming BB, the intelligence report said the BB top brass lacked prudence when they allowed the scheduled banks to invest up to 30 per cent of their liabilities in the share market in 2010 defying relevant regulations. Officials in the Ministry of Finance said they are pursuing all these suggestions made by the intelligence agency. "As per the suggestions, the revenue board has already extended some tax exemptions and rolled back some taxes, while share transaction settlement time has been reduced," a top official in the ministry said.