SEC asks bourses to prepare guideline
Tuesday, 2 June 2009
Kayes M Sohel
The Securities and Exchange Commission (SEC) has asked the bourses to make a guideline on transferring junk shares from the electronic board to over the counter market (OTC).
The directive came against the backdrop of recent unusual price hike of the shares of the non-performing Z-category companies. Shares of the de-listed and non-performing Z-category companies will be brought under OTC market.
"The commission has asked the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE) to submit soon a guideline on introducing an effective OTC market so that investors are benefitted," said SEC executive director Anwarul Kabir Bhuiyan after the meeting with the bourses.
With SEC chairman Md Ziaul Haque Khondker in the chair, the meeting was also attended by DSE president Rakibur Rahman, senior vice president Saiful Islam, CSE vice president Al Maruf Khan and other high officials.
"Placement of junk shares in the OTC market would protect investors' interest --- especially those who don't follow company fundamentals closely," Bhuiyan said.
The bourses will make a guideline on trading in the OTC market, which does not exist at the DSE, and on fixation of criteria for the companies to be eligible for trading on the OTC floor, he added.
The meeting agreed unanimously that inactive and non-performing companies would be transferred from main electronic board to the OTC market.
In 2001, the SEC endorsed rules for introducing OTC market at the bourses for the de-listed companies. Under the rules the CSE introduced the OTC market. And the commission permitted trading of shares of four de-listed companies-Paragon Leather, Rupon Oil, National Oxygen and Zem Knitwear.
But since introduction, not a single share was traded.
Experts opined the investors lost their interest in stocks traded under OTC market as they considered those risky.
Besides, they are in confusion if they would be able to sell the OTC stocks after buying.
But some market analysts termed the move as a ploy to let the rogue companies off the hook instead of disciplining them.
"It means some companies will get listed with the capital market, make some money and leave the scene. It will not protect investors' interest, an analyst said.
Companies that neither offer dividends nor hold annual general meetings regularly or are out of operation fall under Z category.
"There are many companies that are not in operation. They have no offices either, but their shares are traded on the stock exchanges," an official said.
Salahuddin Ahmed Khan, professor of the finance department of the Dhaka University, said, "OTC market will encourage companies to come to the market, raise money and get out of the market."
OTC market and the stock market cannot go together, he said adding the bourses should ensure accountability from the listed companies first.
Instead of taking the bad performers off the market, the regulator should take over the companies and declare the companies bankrupt, he suggested.
"If necessary, the Companies Act should be amended."
Out of 276 companies listed with the DSE, around 83 are placed in the Z-category for their poor corporate performance and non-compliance with some of the key securities rules. Of the Z-category companies, 29 are non-performing companies. The DSE so far de-listed around 30 companies.
The Securities and Exchange Commission (SEC) has asked the bourses to make a guideline on transferring junk shares from the electronic board to over the counter market (OTC).
The directive came against the backdrop of recent unusual price hike of the shares of the non-performing Z-category companies. Shares of the de-listed and non-performing Z-category companies will be brought under OTC market.
"The commission has asked the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE) to submit soon a guideline on introducing an effective OTC market so that investors are benefitted," said SEC executive director Anwarul Kabir Bhuiyan after the meeting with the bourses.
With SEC chairman Md Ziaul Haque Khondker in the chair, the meeting was also attended by DSE president Rakibur Rahman, senior vice president Saiful Islam, CSE vice president Al Maruf Khan and other high officials.
"Placement of junk shares in the OTC market would protect investors' interest --- especially those who don't follow company fundamentals closely," Bhuiyan said.
The bourses will make a guideline on trading in the OTC market, which does not exist at the DSE, and on fixation of criteria for the companies to be eligible for trading on the OTC floor, he added.
The meeting agreed unanimously that inactive and non-performing companies would be transferred from main electronic board to the OTC market.
In 2001, the SEC endorsed rules for introducing OTC market at the bourses for the de-listed companies. Under the rules the CSE introduced the OTC market. And the commission permitted trading of shares of four de-listed companies-Paragon Leather, Rupon Oil, National Oxygen and Zem Knitwear.
But since introduction, not a single share was traded.
Experts opined the investors lost their interest in stocks traded under OTC market as they considered those risky.
Besides, they are in confusion if they would be able to sell the OTC stocks after buying.
But some market analysts termed the move as a ploy to let the rogue companies off the hook instead of disciplining them.
"It means some companies will get listed with the capital market, make some money and leave the scene. It will not protect investors' interest, an analyst said.
Companies that neither offer dividends nor hold annual general meetings regularly or are out of operation fall under Z category.
"There are many companies that are not in operation. They have no offices either, but their shares are traded on the stock exchanges," an official said.
Salahuddin Ahmed Khan, professor of the finance department of the Dhaka University, said, "OTC market will encourage companies to come to the market, raise money and get out of the market."
OTC market and the stock market cannot go together, he said adding the bourses should ensure accountability from the listed companies first.
Instead of taking the bad performers off the market, the regulator should take over the companies and declare the companies bankrupt, he suggested.
"If necessary, the Companies Act should be amended."
Out of 276 companies listed with the DSE, around 83 are placed in the Z-category for their poor corporate performance and non-compliance with some of the key securities rules. Of the Z-category companies, 29 are non-performing companies. The DSE so far de-listed around 30 companies.