Making demutualisation of exchanges meaningful

How are the demutualised stock exchanges performing in Bangladesh?
It is too early to ask this kind of question for only 16 months have gone by since the demutualisation of the country's bourses.
Yet a reporter from The Financial Express recently raised this question and sought answers to it from various stakeholders and experts. And answers, obviously, varied.
The most interesting response came from a section of the brokers of the Dhaka Stock Exchange (DSE), the premier bourse of the country, who were on the boards of directors in the recent past. Talking to the FE, they maintained that the incumbent DSE board constituted following the demutualization of the bourse had miserably failed to show any 'visible' success.
However, the incumbent boards of both DSE and the Chittagong Stock Exchange (CSE) dismissed the allegation claiming 'remarkable' successes in some areas of operations of the two bourses.
But it is important to know the opinion of the DSE brokers who did not have any involvement in the management of the bourse. They seemed to be happy with the demutualization since it has brought the influential brokers on a par with ordinary ones. They also expect dividend from the financial operations of the bourse.
For more than one and a half decades, a handful of brokers at the DSE dominated the management of the bourse and they elected members on the board keeping an eye on their connections with people at high places.
A section of former DSE leaders were allegedly involved in the manipulation of stock prices during the market bull runs of 1996 and 2010. Even laymen could smell the connivance of these leaders with the stock market manipulators.
A few former DSE leaders while appearing on the television talk-shows used to talk tall and openly defended the abnormal hike in stock prices. Thus, they had misled the innocent small investors to make investment in a market that was about to collapse anytime. But when the market really fell apart, these leaders disappeared from the scene. And because of their links with the powerful quarters they have gone unscathed.
The demutualization process, if implemented and followed in letter and spirit, any dominance of the so-called influential brokers is very unlikely.
On the boards of two bourses, there are as many as 14 independent members who do not have any kind of business interest in the bourses. It is expected that they would work for the greater interest of the bourses and the investors.  
That the demutualisation has created scopes for running the bourses professionally was evident from the response made by the incumbent chief executive officer (CEO) of the DSE to queries from the FE reporter. He made candid observations about the allocation of spaces to the brokers in the newly built DSE tower at Nikunja and strong relationship between the DSE and the securities regulator, the Bangladesh Securities and Exchange Commission (BSEC). Earlier, the CEOs of bourses were hardly given any chance to speak to the media in the management affairs.
However, it is hard to pin that much of unalloyed hope on any institution in Bangladesh because of widespread political interference in their operations. Unfortunately, things have been going from bad to worse with the passage of time. The state of affairs with all national institutions does bear testimony to that fact.
So, the present demutualised bourses are expected to operate much to the liking of the general investors and others who favour transparency and accountability on the part of national institutions, financial or otherwise, until someone very powerful decides to impose his/her choices or preferences on the boards. It is not that this would happen. But under Bangladesh conditions, one can hardly rule out such a possibility.
Some capital market experts have rightly favoured early offloading of the blocked shares of the demutualised bourses to the international strategic partners and general investors to avoid such a possibility.
Such offloading would make the bourse accountable to both international and domestic investors.
However, the Exchanges (Demutualisation) Act, adopted by the national parliament on April 29, 2013, empowers the securities regulator to order offloading of shares to a strategic partner and general investors anytime within three years from the date of demutulisation of an exchange. The exchange concerned will have to carryout that order within a year.
Since the strategic partner is allowed to hold up to 25 per cent of a demutualised exchange, it is expected to keep a watchful eye on the overall operation and management of the exchange.
The delay in the transfer of blocked shares to strategic partner and general investors is unlikely to benefit the primary shareholders who own 40 per cent stake of a demutualised exchange. So, all concerned should work in unison for early involvement of strategic and general investors for the sake of ensuring greater accountability on the part of demutualised bourses. This will also send out a positive signal for the investors, both at home and abroad, about the greater depth of the Bangladesh stock market.
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