Market experts say the previous two commissions exerted direct or indirect influences on the market index and turnover to create a false but positive impression among investors.
"It seemed to be their responsibility to drive stocks up to a satisfactory level," said Md. Ashequr Rahman, managing director of Midway Securities.
The good sign of the present commission is that it does not worry over index movement and does not intend to prevent its decline artificially.
"We need to give priority to restoring investor confidence in the market, not artificially or on a temporary basis. It should be earned through fundamental changes," said Khondoker Rashed Maqsood upon taking charge as the chairman of the Bangladesh Securities and Exchange Commission (BSEC)
The new commission has reiterated its pledge to ensure good governance. As part of fulfilling the pledge, it formed several probe committees to look into allegations of malpractices and identify those behind them. It also took stringent actions against several brokers and investors for violations of securities rules.
"Stakeholders' performances will reflect on the market index," said Mr Maqsood at a meeting in September. Market players should embark upon a drive to remove internal corrupt practices, he added.
Meanwhile, the BSEC has formed a task force to recommend reforms that will help the market make a turnaround and set out on a growth trajectory.
Regulatory control on index movement
Stock brokers and merchant banks received phone calls from the previous commissions and were asked to support the market whenever the index suffered a plunge, insiders say.
Requesting anonymity, a stock broker said they had received verbal instructions to refrain from executing sales in a bearish market. They also had to show positive net balance even after the execution of sale orders on a large scale from clients.
For example, a client of a stock broker had sold shares worth Tk 50 million. Then the broker had to purchase stocks from their own portfolio for reporting a positive net balance.
The regulator also used to change margin loan ratios from time to time to encourage investors to borrow and inject money into the market. It set the rations in alignment with the positioning of the index. The investments temporarily increased liquidity flow but over time caused the burden of negative equity.
For example, margin loans were allowed at a ratio of 1:0.75 in 2020 in the case of the broad index of the Dhaka bourse below 4,000 points.
The ratio was set at 1:0.50 for the DSEX between 4,001 points and 7,000 points and 1:0.25 for the DSEX at 7001 points or above.
The regulator even relaxed rules in May 2023 to allow poor-performing companies, such as S. Alam Cold Rolled Steels, with P/E ratio above 40 to get margin loan facility.
The market exhibited manufactured movements, which manipulators used to take advantage of to earn quick profits and then dumped overpriced shares to general shareholders.
The extension of the tenures of the closed-ended mutual funds was another major intervention in the market to the detriment of the sector. Investors lost faith in the professionally-managed funds when MF unit holders could not liquidate their assets.
Then floor prices were imposed during the pandemic and afterwards, as the Russia-Ukraine war broke out, to ward off free fall of stocks. The price restriction had been in place for 18 months through January 2024.
Actions taken by new commission
The BSEC with new leadership has concentrated on reform measures and disciplining market stakeholders.
In a major drive to enforce compliance, the market watchdog slammed hefty fines on several market manipulators and companies for their involvement in malpractices during the tenure of the previous commission.
It set an example in October by penalizing five companies and four individuals with a record fine of Tk 4.28 billion allegedly for illegal trades in shares of Beximco.
The new commission also imposed fines amounting to Tk 1.35 billion on well-known investor Md Abul Khayer, who is deputy registrar at the Department of Cooperatives, and his family members for illegal transactions of shares of four listed companies.
This is not the first time he has been found guilty by the regulator of such a crime. But the earlier commission let him get away with alleged financial frauds by paying insignificant fines. So, the punishment never deterred him from repeating the illegal acts.
In the meanwhile, the commission transferred 28 companies to 'Z' category over issues of non-compliance. Probes have been launched into the issuance of Beximco Green Sukuk Bond and IFIC Granted Sreepur Township Green Zero Coupon Bond.
Irregularities tied to Fortune Shoes, Ring Shine Textile, Acme Pesticide, Quest BDC (Padma Printers Limited), Coppertech industries and Emerald Oil industries also came under regulatory scrutiny.
Signs of change yet to appear
The market's downward movement over the last two months is blamed on the regulator's firm actions.
The taskforce is yet to make recommendations. It will also take some time before the probe committees submit their reports.
"Confusion will be there about the outcome of the actions until investors see visible signs," Md. Moniruzzaman, managing director of Prime Bank Securities.
A group of investors have recently demonstrated demanding the resignation of the commission chief.
"It looks like many don't like the fact that the incumbent commission is not boosting the turnover value," said Ashequr Rahman, of Midway Securities.
"I think the market will start showing signs of recovery with the restoration of good governance," he added.
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