Recent debacle in the capital market
Saturday, 1 December 2007
Syeduzzaman
BEING a regulatory body for the capital market, the Security Exchange Commission (SEC) seems to be staffed with people of yesterday and not today. Enriched with so many reform measures undertaken by the government these days, the capital market is developing according to global standards. But not our SECin that pace. It has been outpaced.
The Bloomberg report that appeared in your esteemed daily on 12 October 07 has identified Bangladesh and Vietnam as the prospective emerging markets in Asia. Our market capitalisation stands at US$10 billion. And a popular estimate puts loan extended by all merchant banks and brokerage houses together to their clients at not beyond Taka 10 billion. It works out a very nominal 1.4 per cent of the market capitalisation. How does such a very nominal cut in money supply with SEC order prohibiting merchant banks and brokerage houses to extend loan to their clients can cause the market to shed more than 200 points in just four days? And how is it that with partial restoration of this loan on November 25, the market gained just in one day all the points that it lost? What played the game? It is the panic! And panic among whom? It is among the retail investors.
Being panicked they sold out all their shares at loss. And big players being more professional and shrewd were steady at their guns and bought all those shares from retail investors. Retail investors who could still buy did not buy. Because they lost confidence thinking like this: Why go for buying? As soon as price rises, SEC would intervene again. Is it rational for the regulatory body to crack down on the confidence of the investors in our capital market? The right step, it need not be overemphasised, would be to release more good shares.
But it is being touted for quite some time that a lot of government shares would be off-loaded. But nothing of substance is visible as yet. They might have been trapped in bureaucratic tangle. A rallying point that comes to the fore in this context is this: Lacking right step, is it rational for our regulatory body to take a step no matter it is right or wrong? Judging the totality of our situation, it stands to reason that our regulatory body needs to be trained and oriented with exposure to other global markets on modern techniques of capital market management to match the new shape our capital market is going to take. They may thus be equipped to decide with the help of professional knowledge and not by applying just common sense typical of our bureaucrats.
Our regulatory body enjoys absolute power. But history is replete with countless examples of absolute power leading to its absolute abuse and ultimate destruction. Is it not more rational for our regulatory body to share power to be able to play a more productive role? It is another dimension to the subject to ponder over.
BEING a regulatory body for the capital market, the Security Exchange Commission (SEC) seems to be staffed with people of yesterday and not today. Enriched with so many reform measures undertaken by the government these days, the capital market is developing according to global standards. But not our SECin that pace. It has been outpaced.
The Bloomberg report that appeared in your esteemed daily on 12 October 07 has identified Bangladesh and Vietnam as the prospective emerging markets in Asia. Our market capitalisation stands at US$10 billion. And a popular estimate puts loan extended by all merchant banks and brokerage houses together to their clients at not beyond Taka 10 billion. It works out a very nominal 1.4 per cent of the market capitalisation. How does such a very nominal cut in money supply with SEC order prohibiting merchant banks and brokerage houses to extend loan to their clients can cause the market to shed more than 200 points in just four days? And how is it that with partial restoration of this loan on November 25, the market gained just in one day all the points that it lost? What played the game? It is the panic! And panic among whom? It is among the retail investors.
Being panicked they sold out all their shares at loss. And big players being more professional and shrewd were steady at their guns and bought all those shares from retail investors. Retail investors who could still buy did not buy. Because they lost confidence thinking like this: Why go for buying? As soon as price rises, SEC would intervene again. Is it rational for the regulatory body to crack down on the confidence of the investors in our capital market? The right step, it need not be overemphasised, would be to release more good shares.
But it is being touted for quite some time that a lot of government shares would be off-loaded. But nothing of substance is visible as yet. They might have been trapped in bureaucratic tangle. A rallying point that comes to the fore in this context is this: Lacking right step, is it rational for our regulatory body to take a step no matter it is right or wrong? Judging the totality of our situation, it stands to reason that our regulatory body needs to be trained and oriented with exposure to other global markets on modern techniques of capital market management to match the new shape our capital market is going to take. They may thus be equipped to decide with the help of professional knowledge and not by applying just common sense typical of our bureaucrats.
Our regulatory body enjoys absolute power. But history is replete with countless examples of absolute power leading to its absolute abuse and ultimate destruction. Is it not more rational for our regulatory body to share power to be able to play a more productive role? It is another dimension to the subject to ponder over.