The Dhaka Stock Exchange (DSE) has been rebuked by the securities regulator for "misleading" investors as it has not changed the category of 23 companies even after their failure to meet the criteria.
Its website still shows the organisations under A and B category despite the fact that they violated a 2020 order given by the Bangladesh Securities and Exchange Commission (BSEC).
A listed company's performance should be reflected by the tag -- A, B, Z or N -- it has been attached to. Investors often choose stocks while looking at the category they have been grouped into, which is why the bourses should update the companies' status on a regular basis.
An investor, who purchases shares of an A stock considering that the company is in operation, has distributed cash dividends and held annual general meetings (AGMs), as stipulated, may feel betrayed if that is not the case.
"Such type of false appearance", the BSEC said in a show-cause letter issued on June 26, "is very much misleading to the investors."
The securities regulator asked the DSE to explain its position within three working days from the issuance of the letter. The time will end on Tuesday after the Eid vacation.
Meanwhile, the prime bourse downgraded five of the 23 companies to Z category on June 25. The companies are Nurani Dyeing & Sweater, Shurwid Industries, Northern Jute Manufacturing Company, Appollo Ispat Complex, and Ratanpur Steel Re-Rolling Mills.
According to the regulatory directive issued in September 2020, any listed company shall be transferred or shifted to Z category if it has failed to pay out cash dividends for two years in a row, or if it has failed to hold AGMs within the stipulated time or if it has been out of operation or production for a span of minimum six months.
A company will face the same consequence if its net operation cash flow has remained negative for two consecutive years.
Save the five stocks already downgraded, five of the 18 remaining stocks are under A category and the rest in B category.
To be labelled as A stock, a company has to pay at least 10 per cent dividend (cash plus stock) per share, annualised, to shareholders while B stocks provide less than 10 per cent dividend (cash plus stock) per share for a year.
If the DSE has not changed the companies' category as per the rules, it is liable for giving misleading information to investors, said former chairman of the securities regulator Faruq Ahmad Sidiqi.
"The regulator should take measures based on the exchange's explanation," he added.
Insiders say the inaction of the premier bourse is tantamount to manipulation whether it happened intentionally or unintentionally.
For example, Ring Shine Textiles still remains in A category though it has not paid cash dividend for more than two years. The last time it paid any dividend was in the form of stocks in 2019, according to the DSE website.
Similar is the case with CVP Petrochemicals Refinery and Renwick Jajneswar & Company.
New Line Clothings and Kattali Textile have kept AGMs pending but are still in A category.
Some of the B stocks have been non-compliant for not declaring cash dividends for at least two years while others kept AGMs pending or have long suspended their operations.
The categorisation of listed companies helps investors take investment decisions, said Managing Director of Midway Securities Md. Ashequr Rahman.
He emphasized the need for transparency in this regard especially when a significant number of investors are not well informed about the companies' business performance and their financial literacy is not up to the mark.
Hence, the DSE has failed to protect investors' interest.
DSE Managing Director M. Shaifur Rahman Mazumdar said the bourse had informed the BSEC of the companies' performance and the matter of category change.
"But there was a delay in getting approval from the regulator."
Asked if the permission is needed, the DSE spokesperson said "in some cases" without elaborating on it.
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