Regulator "over-dependent" on task force for urgent reforms

Market intermediaries accuse the securities regulator of having shifted its responsibilities to the Financial Institutions Division (FID) and task force so that it does not have to take the blame for any misstep.
The Bangladesh Securities and Exchange Commission (BSEC) in October formed the task force for suggesting market reforms. The market watchdog is also relying on the FID for directions on many urgent matters, such as negative equity.
"Instead of providing any solution, the regulator is shifting its responsibility saying that the Ministry of Finance (MoF) and the task force are overseeing the issues," said Saiful Islam, president of the DSE Brokers Association (DBA).
Talking to The FE, several brokers, merchant banks and other stakeholders said the problems that they had placed before the BSEC were left unaddressed. They spoke on condition of anonymity.
Market operators say the BSEC should not be dependent on the task force in every matter tied to the market and that it must have its own capacity to regulate the market.
For example, the BSEC should be able to repeal the rules that allowed the extension of the maturity period of close-ended mutual funds, a major factor behind the sorry state of the sector.
"The BSEC also can overthrow an asset manager for involvement in irregularities, which have been proved by its own investigations," said a chief of a leading brokerage firm.
Meanwhile, the fate of the Capital Market Stabilisation Fund (CMSF) is hanging as the securities regulator is awaiting a decision from the FID on whether to let the Fund continue operating or to close it.
The modification of the IPO (initial public offering) valuation method is a long standing issue. Market intermediaries sought an immediate solution after the formation of the new commission upon the fall of Sheikh Hasina's regime.
A delay would hamper new listings, they say.
Farzana Lalarukh, a BSEC commissioner, however, ruled out the claims, saying the regulator was working within the existing laws. "We are not sitting idle and are holding meetings internally and with market intermediaries. The outcomes of our jobs will be visible in time."
Task force to complete task within "undisclosed" deadline
DBA chief Saiful Islam said the regulator' current approach is an impediment to restoring confidence of stakeholders and investors in the market.
"Whenever we go to the Commission with any problem, it says the taskforce is working on it."
The ToR (terms of reference) of the task force has 17 issues that it is supposed to look into and suggest reforms in the interest of the market and investors. The BSEC repeatedly said it would take actions based on recommendations from the task force.
But market stakeholders say there are issues beyond the ToR of the task force, which need quick fixing.
Besides, problems surrounding negative equity, margin rules and IPO valuation method should be solved on an urgent basis to revitalize the market.
"We want reforms. But we are frustrated with the task force that has no specific timeframe to submit recommendations," said the DBA president.
In her response, Ms Lalarukh said the taskforce has an "undisclosed" deadline. "The taskforce will submit some recommendations very soon. We will see how much of their recommendations can be adopted in the present context and scopes."
As per the Bangladesh Securities and Exchange Commission Act 1993, the commission is to protect the interest of investors, develop the market and make rules for matters connected to it.
The Securities and Exchange Ordinance, 1969 even gave the BSEC "extreme power" to take decisions in the interest of the capital market.
However, on negative equity, the BSEC said it would deliver a decision on receiving opinions from the FID.
Similarly, the task force has been working on margin rules and the IPO valuation methods.
According to sources, a committee had been formed by the securities regulator to amend the rules for margin loans. Now the matter is in the hands of the task force.
The task force has been working with some focus groups but their identities have not been disclosed.
There are so many intermediaries in the capital market. As many as 500 stock brokers, 66 merchant banks and 67 asset management companies operate in the market.
Industry insiders said market operators are too many for a small capital market of Bangladesh. Moreover, the market does not need two exchanges to cater to the same clients in the same time zone.
The BSEC, they say, should optimize the use of resources, may merge the bourses, if necessary, and cancel the licences of the entities that failed to perform.
A former chairman of the securities regulator, Faruq Ahmad Siddiqi said no one knows what kind of recommendations would be made by the task force.
"How many recommendations can be accepted is also unknown. But the decisions that can be taken by the regulator should not be kept pending."

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