SEC plans to fix minimum share-holding for sponsors

FE ReportThe securities regulator is contemplating changes in the minimum share-holding limit for sponsor-directors of listed companies to meet, what it considered, the need to help reduce aggressive sale pressures in the market. The Securities and Exchange Commission (SEC) has drawn up the plan as part of wider efforts to deal with volatility and stop the company owners from cashing in on a market bubble by dumping their stakes in one-go. Under the plan, sponsor-directors of firms intending to list on the stock markets could be required to hold a minimum of 30 per cent stake and those of already listed firms would be told to keep certain percentage in their ownership. "In absence of any provision of holding minimum volume of shares, the sponsor-directors dispose of shares whenever they want, which affects the market adversely," SEC chairman M Khairul Hossain said. Professor Hossain said the regulator would make some changes in the holding provisions in listed firms so that a section of unscrupulous company owners can't manipulate the market in future. Currently, the country's securities laws do not have any provision, which can force the sponsor-directors to hold a minimum stake in a company. "The holding portion can be fixed at 30 per cent for the companies, which have yet to offload their shares in the stock market. However, we are examining the matter to make it time befitting," he told the FE. When asked whether the market would face paucity of shares due to the provision, the SEC chairman said the regulator could ease the lock-in period for some stocks depending on the market situation. SEC officials said a draft order to this effect has already been prepared after consultations with lawyers, experts and chartered accountants. The law ministry is examining whether the draft conflicts with the Company Act. Barrister Moksadul Islam, a Supreme Court lawyer who is specialized in company laws, welcomed the move, terming it "a good sign" for the country's stock market. But he doubted whether the securities regulator could be able to set the minimum share-holding limit at 30 per cent for the sponsor-directors. "First of all, such a provision could trigger legal issues in company ownership structures," he said. He said the regulator should start with a "reasonable" base "experimentally" to see how the regulation plays out in the market. "The minimum share-holding limit can be reduced or expanded in future in consultations with the stakeholders," Mr. Islam added. A sponsor-director of a listed firm, whose company's sponsor-directors hold only six per cent shares in the company, said the SEC move could be a setback for the general investors. "I agree that the SEC's plan can help contain aggressive sale pressure in the market, because most sponsor-directors look for the opportune time to sell their stakes so that they can make maximum profits," he said. "But making the sponsor-directors keep a minimum 30 per cent stake has its drawbacks. It means only a handful of people will eat up the lion's share of the company's dividends. It'll benefit only a few," he said, speaking on condition of anonymity. At present sponsor-directors of 34 companies hold less than 30 per cent shares of their companies. Barring the mutual funds and bonds, the DSE has 241 listed companies.