Market does not need a subservient regulator
Monday, 14 December 2009
Shamsul Huq Zahid
The Securities and Exchange Commission (SEC), on being instructed by the finance ministry, late last week asked the bourses not to allow companies other than the state-owned ones to be listed under the directing listing regulations.
Though the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE) have refrained themselves from giving any formal reaction on the SEC directive, capital market experts described the move as anti-market and discriminatory.
The experts are of the opinion that the decision of the finance ministry would discourage the reputed and profit-earning companies to float shares when there exists a dearth of good stocks in the market.
The government decision, it seems, has come following allegations that some private sector companies have made undue profits through direct listing in recent months.
Three private sector companies, namely, Shinepukur Ceramics, ACI Formulations and Navana CNG and five state-owned enterprises - Titas Gas Transmission and Distribution Company Ltd, Dhaka Electricity Supply Company (DESCO), Power Grid of Bangladesh, Jamuna Oil Company and Meghna Petroleum Company have so far been listed with the bourses under the direct listing regulations.
Both the DSE and the CSE enforced the direct listing regulations in the year 2006. The regulations concerned have been framed in such a way that only the companies having good track record, in terms of profitability and regular holding of annual general meetings, can be listed with the bourses. Besides, the bourses, according to the direct listing rules, are required to send copies of all information and documents received from a company willing to be listed with them to the SEC. They are not supposed to list any company under direct listing regulations in the event of any negative opinion from the SEC.
So, the bourses are not enjoying freedom to get any company listed under the direct listing regulations. They are very much dependent on the clearance from the securities regulator.
Irregularities in pricing may happen in the case of any stock before and after its listing with bourses. It can also happen during the fixation of premium value of shares floated for public subscription through initial public offerings (IPOs). There are both old and new instances. The case of Mark BD shares is a glaring example. The SEC allowed 100 per cent premium to the company whose net worth was, actually, zero. Many of the investors, who had made long queues in banks to get hold of a few shares of Mark BD, are cursing their fate now. There should be no earthly reason to expect the recovery of even a penny out of that investment.
Many tend to believe that the premium allowed to a foreign-owned toiletry company recently was more than what was due.
The capital markets are prone to speculation, rumours and irregularities the world over. Even globally famous companies listed with bourses of developed countries where regulators are known to be hawk-eyed have cheated their investors by dishing out misinformation about their financial health. A good number of top bosses of these companies are now languishing in prisons. All sorts of reforms are now being put in place in these countries to stop recurrence of similar irregularities.
So, shutting the door to the potential private sector companies is not the way of addressing the problem of irregularities, if there is any. Rather, it would be prudent to devise means to plug the holes in the existing system. And it is the job of the securities regulator. If necessary, changes can be brought in the direct listing regulations so that the companies concerned cannot cheat the investors through their manipulative activities.
It seems that the government these days is more interested in exercising its authority over the SEC in accordance with the article 16 of the Securities and Exchange Commission Act of 1993. The article concerned makes it binding on the SEC to comply with any directive given by the government in the matters of capital market.
According to knowledgeable circles, the government has recently asked the SEC not to allow floatation of IPO by a company if it fails to offer stocks worth equivalent to 40 per cent of its paid up capital.
The government might have issued the directive due to the ruling abnormal prices of stocks of the companies that have offered a small fraction of their paid up capital to general investors.
But the fact remains that in a market flooded with investors, both institutional and individual, size does not matter. Even prices of many issues, which have offered a big chunk of their paid-up capital, are very high in comparison with their fundamentals.
Notwithstanding the fact the ongoing developments in the share market do not reflect the actual situation in other areas of the economy, the market has a strong appetite for more new issues. Unless new companies continue to come to the market regularly, the situation might get over-heated, in terms of price. There is no denying that a steady inflow of new issues in recent months has helped absorb much of the heat generated from time to time.
The entry of the Grameenphone has brought about a noticeable change in the market. Thousands of new investors have entered the market through GP IPO. Most of those investors have tasted the benefits of being in the market and they are willing to be involved. This is evident from the long queues being made by investors in banks for IPO subscription. Many of these new investors are also entering the secondary market. So, to keep the market stable, the SEC and the bourses would have to ensure regular flow of new stocks in the market. Instead of imposing restrictions, the government should help the organizations concerned to keep the market stable by maintaining transparency and accountability.
..........................................
Zahidmar10@gmail.com
The Securities and Exchange Commission (SEC), on being instructed by the finance ministry, late last week asked the bourses not to allow companies other than the state-owned ones to be listed under the directing listing regulations.
Though the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE) have refrained themselves from giving any formal reaction on the SEC directive, capital market experts described the move as anti-market and discriminatory.
The experts are of the opinion that the decision of the finance ministry would discourage the reputed and profit-earning companies to float shares when there exists a dearth of good stocks in the market.
The government decision, it seems, has come following allegations that some private sector companies have made undue profits through direct listing in recent months.
Three private sector companies, namely, Shinepukur Ceramics, ACI Formulations and Navana CNG and five state-owned enterprises - Titas Gas Transmission and Distribution Company Ltd, Dhaka Electricity Supply Company (DESCO), Power Grid of Bangladesh, Jamuna Oil Company and Meghna Petroleum Company have so far been listed with the bourses under the direct listing regulations.
Both the DSE and the CSE enforced the direct listing regulations in the year 2006. The regulations concerned have been framed in such a way that only the companies having good track record, in terms of profitability and regular holding of annual general meetings, can be listed with the bourses. Besides, the bourses, according to the direct listing rules, are required to send copies of all information and documents received from a company willing to be listed with them to the SEC. They are not supposed to list any company under direct listing regulations in the event of any negative opinion from the SEC.
So, the bourses are not enjoying freedom to get any company listed under the direct listing regulations. They are very much dependent on the clearance from the securities regulator.
Irregularities in pricing may happen in the case of any stock before and after its listing with bourses. It can also happen during the fixation of premium value of shares floated for public subscription through initial public offerings (IPOs). There are both old and new instances. The case of Mark BD shares is a glaring example. The SEC allowed 100 per cent premium to the company whose net worth was, actually, zero. Many of the investors, who had made long queues in banks to get hold of a few shares of Mark BD, are cursing their fate now. There should be no earthly reason to expect the recovery of even a penny out of that investment.
Many tend to believe that the premium allowed to a foreign-owned toiletry company recently was more than what was due.
The capital markets are prone to speculation, rumours and irregularities the world over. Even globally famous companies listed with bourses of developed countries where regulators are known to be hawk-eyed have cheated their investors by dishing out misinformation about their financial health. A good number of top bosses of these companies are now languishing in prisons. All sorts of reforms are now being put in place in these countries to stop recurrence of similar irregularities.
So, shutting the door to the potential private sector companies is not the way of addressing the problem of irregularities, if there is any. Rather, it would be prudent to devise means to plug the holes in the existing system. And it is the job of the securities regulator. If necessary, changes can be brought in the direct listing regulations so that the companies concerned cannot cheat the investors through their manipulative activities.
It seems that the government these days is more interested in exercising its authority over the SEC in accordance with the article 16 of the Securities and Exchange Commission Act of 1993. The article concerned makes it binding on the SEC to comply with any directive given by the government in the matters of capital market.
According to knowledgeable circles, the government has recently asked the SEC not to allow floatation of IPO by a company if it fails to offer stocks worth equivalent to 40 per cent of its paid up capital.
The government might have issued the directive due to the ruling abnormal prices of stocks of the companies that have offered a small fraction of their paid up capital to general investors.
But the fact remains that in a market flooded with investors, both institutional and individual, size does not matter. Even prices of many issues, which have offered a big chunk of their paid-up capital, are very high in comparison with their fundamentals.
Notwithstanding the fact the ongoing developments in the share market do not reflect the actual situation in other areas of the economy, the market has a strong appetite for more new issues. Unless new companies continue to come to the market regularly, the situation might get over-heated, in terms of price. There is no denying that a steady inflow of new issues in recent months has helped absorb much of the heat generated from time to time.
The entry of the Grameenphone has brought about a noticeable change in the market. Thousands of new investors have entered the market through GP IPO. Most of those investors have tasted the benefits of being in the market and they are willing to be involved. This is evident from the long queues being made by investors in banks for IPO subscription. Many of these new investors are also entering the secondary market. So, to keep the market stable, the SEC and the bourses would have to ensure regular flow of new stocks in the market. Instead of imposing restrictions, the government should help the organizations concerned to keep the market stable by maintaining transparency and accountability.
..........................................
Zahidmar10@gmail.com