Pseudo regulators make stock investors jittery
Wednesday, 5 May 2010
Shamsul Huq Zahid
Actions and pieces of advice from the ministry concerned, regulator and pseudo-regulators of the capital market are galore these days.
And investors as well as bourses are rather bewildered and confused by directives and suggestions, which are, at times, conflicting in nature, coming from all directions.
The Securities and Exchange Commission (SEC), only lawful regulator of the capital market, apparently, is now experiencing an embarrassing situation. Though the SEC has asked all involved in stock trading, including the stockbrokers and officials of asset management companies, to refrain from making statements that might influence the market, it does not dare request its controlling ministry and parliamentary standing committees not to make public statements on the securities related issues.
What is more interesting is that some entities that are in no way connected with the stock market are taking decisions and issuing directives beyond their lawful limits.
For instance, the parliamentary standing committee on public undertakings in a meeting held on April 26 last asked the SEC to move to impose 5.0 per cent tax on the profit of short-term investors to discourage them from taking part in stock trading. Besides, the committee asked the market regulator to make the furnishing of tax identification number (TIN) mandatory at the time of opening beneficiary owners (BO) accounts.
The parliamentary standing committees are important bodies in a democracy. But the rules of procedure of the parliament have specific guidelines for each of such committees elaborating their area of work and powers. If the standing committee on public undertakings takes decision on stock market what will the parliamentary standing committee on finance ministry or the finance ministry itself do?
Moreover, how can the public undertakings committee ask the SEC to impose tax on profit earned by the short-term investors? Imposition of tax is not the job the securities regulator but of the National Board of Revenue (NBR). It should have advised the NBR on the tax issue.
The suggestion to impose tax on the profit earned by short-term investors is unique in the history of the world capital market. Nowhere in the world investors are punished, financially, for making short-term investments. Investors go to stock market to earn profit and they are always free to buy and sell their stocks anytime.
It would be worthwhile to mention here that earlier newspaper reports on the possibility of imposing tax on capital gains from investment in stocks and mandatory requirement of TIN submission for opening BO accounts recently unnerved the investors and the market witnessed a selling pressure. The situation became stable following assurance by the NBR that it would not do anything that would hurt investors' interest.
The stock markets being speculative in nature are always sensitive to official decisions or interventions. In the case of Bangladesh, the situation is more delicate since small investors are guided more by rumours than knowledge-based speculations. Despite full automation of transactions in bourses, insider and syndicated stock trading is thought to be a plenty. The regulator is yet to build up its own capacity and expertise to detect all the securities-related irregularities. Vested interests sometimes also discourage it from taking appropriate actions against such irregularities.
The SEC should have been an independent capital market regulator. Unfortunately, it has been made subservient to the "parent" ministry. If a few more entities, parliamentary or otherwise, start dictating it, the SEC would find it hard to carry out its mandated responsibilities.
Another issue, the face value of listed securities, deserves careful attention of the regulator. The SEC has decided to fix the minimum face value of shares not below Tk 10 each for any company willing to go public in the future. The finance ministry has lent its support to the SEC decision. There is nothing wrong with the SEC decision on the minimum face value.
But a few problems have surfaced over the move to change the face value of some existing listed stocks. It has been observed that the prices of stocks of the listed issues go up abnormally when companies concerned make announcements or seek permission for changing the face value of their shares to Tk. 10.
It remains a puzzle as to why a company would take the trouble of changing the face value of their shares since such a change, instead of bringing any financial gains, would increase the workload of its share department. Behind such a move, there could be some motives that the SEC must find out.
Besides, it is hard to find the logic behind the investors' unusual interest in stocks deciding to go for lower face value. The change in face value is unlikely to make a losing company profitable or helping it to earn more profit and give higher dividend to the shareholders.
Under the circumstances, the SEC with a view to avoiding artificial buoyancy in the market should discourage the existing listed companies from changing the face value of their shares.
Actions and pieces of advice from the ministry concerned, regulator and pseudo-regulators of the capital market are galore these days.
And investors as well as bourses are rather bewildered and confused by directives and suggestions, which are, at times, conflicting in nature, coming from all directions.
The Securities and Exchange Commission (SEC), only lawful regulator of the capital market, apparently, is now experiencing an embarrassing situation. Though the SEC has asked all involved in stock trading, including the stockbrokers and officials of asset management companies, to refrain from making statements that might influence the market, it does not dare request its controlling ministry and parliamentary standing committees not to make public statements on the securities related issues.
What is more interesting is that some entities that are in no way connected with the stock market are taking decisions and issuing directives beyond their lawful limits.
For instance, the parliamentary standing committee on public undertakings in a meeting held on April 26 last asked the SEC to move to impose 5.0 per cent tax on the profit of short-term investors to discourage them from taking part in stock trading. Besides, the committee asked the market regulator to make the furnishing of tax identification number (TIN) mandatory at the time of opening beneficiary owners (BO) accounts.
The parliamentary standing committees are important bodies in a democracy. But the rules of procedure of the parliament have specific guidelines for each of such committees elaborating their area of work and powers. If the standing committee on public undertakings takes decision on stock market what will the parliamentary standing committee on finance ministry or the finance ministry itself do?
Moreover, how can the public undertakings committee ask the SEC to impose tax on profit earned by the short-term investors? Imposition of tax is not the job the securities regulator but of the National Board of Revenue (NBR). It should have advised the NBR on the tax issue.
The suggestion to impose tax on the profit earned by short-term investors is unique in the history of the world capital market. Nowhere in the world investors are punished, financially, for making short-term investments. Investors go to stock market to earn profit and they are always free to buy and sell their stocks anytime.
It would be worthwhile to mention here that earlier newspaper reports on the possibility of imposing tax on capital gains from investment in stocks and mandatory requirement of TIN submission for opening BO accounts recently unnerved the investors and the market witnessed a selling pressure. The situation became stable following assurance by the NBR that it would not do anything that would hurt investors' interest.
The stock markets being speculative in nature are always sensitive to official decisions or interventions. In the case of Bangladesh, the situation is more delicate since small investors are guided more by rumours than knowledge-based speculations. Despite full automation of transactions in bourses, insider and syndicated stock trading is thought to be a plenty. The regulator is yet to build up its own capacity and expertise to detect all the securities-related irregularities. Vested interests sometimes also discourage it from taking appropriate actions against such irregularities.
The SEC should have been an independent capital market regulator. Unfortunately, it has been made subservient to the "parent" ministry. If a few more entities, parliamentary or otherwise, start dictating it, the SEC would find it hard to carry out its mandated responsibilities.
Another issue, the face value of listed securities, deserves careful attention of the regulator. The SEC has decided to fix the minimum face value of shares not below Tk 10 each for any company willing to go public in the future. The finance ministry has lent its support to the SEC decision. There is nothing wrong with the SEC decision on the minimum face value.
But a few problems have surfaced over the move to change the face value of some existing listed stocks. It has been observed that the prices of stocks of the listed issues go up abnormally when companies concerned make announcements or seek permission for changing the face value of their shares to Tk. 10.
It remains a puzzle as to why a company would take the trouble of changing the face value of their shares since such a change, instead of bringing any financial gains, would increase the workload of its share department. Behind such a move, there could be some motives that the SEC must find out.
Besides, it is hard to find the logic behind the investors' unusual interest in stocks deciding to go for lower face value. The change in face value is unlikely to make a losing company profitable or helping it to earn more profit and give higher dividend to the shareholders.
Under the circumstances, the SEC with a view to avoiding artificial buoyancy in the market should discourage the existing listed companies from changing the face value of their shares.