Professor Shibli Rubayat-Ul Islam resigned on Saturday night less than three months after his reappointment for the second term amid widespread criticism about his performance.
During his tenure of four years and three months, the Bangladesh Securities and Exchange Commission's (BSEC) grip over the market was lax, which allowed corrupt practices, an increase in the number of bad IPOs and market manipulation. Instead of ensuring good governance, the BSEC led by Mr Islam was fixated on keeping the index up artificially.
The Commission led by Mr Islam allegedly catered to a vested quarter while the market gradually turned into the worst place for investment. Both local and foreign investors shunned the market as they saw its deterioration over time.
Before the Shibli-led Commission, Prof Dr M Khairul Hossain served nine years as BSEC chairman. He also earned infamy for allowing weak companies to raise money from the primary market and extending the tenure of closed-ended mutual funds depriving investors of the chance to withdraw investment and return.
The regulatory watchdog failed to ensure growth of the market, which is why the total value of the stock market had been reduced to 7 per cent of nominal GDP in FY24 from over 21 per cent of nominal GDP in FY15. The development worthy to be noted is the inclusion of Treasury bonds in the secondary market in October 2022. That enabled general investors to diversify their portfolios and bring down risks in investments.
The Shibli-led Commission reset the floor price in July 2022 to avert free fall of stocks amid global economic uncertainties following the outbreak of the Russia-Ukraine war. The Khairul-led Commission put in place the price restriction for the first time in March 2020 when the Covid-19 broke out.
The Shibli-led Commission lifted the floor price in January this year after 18 months from all but six stocks -- Beximco, Khulna Power, Shahjibazar Power Company, BSRM, Islami Bank Bangladesh, and Meghna Petroleum.
The supposed goal to protect interest of small investors could not be attained as stocks plunged after the removal of floor prices. In the meantime, large investors got the benefit of large transactions on the block board, where trades could be negotiated at lower than floor prices while the main market remained stagnant.
Allegations of market manipulation
The biggest allegation is that despite being the chief of the securities regulator, Prof Shibli directly and indirectly helped manipulators prop up stock prices "artificially".
Time and again, the BSEC slammed fines on individuals and companies for violating securities rules and manipulating stocks, but market experts say the actions taken were never deterrent to fraudsters.
For example, the regulator fined an individual and three firms Tk 17 million based on the findings of a probe into the abnormal escalation of Himadri on the SME board of the prime index. They had gained more than Tk 812 million by driving the stock up through serial trading.
Moreover, the BSEC did not punish several investors although they were found to have breached rules by committing abnormal trades, according to a recent audit report of the Office of the Comptroller and Auditor General (OCAG) for FY21.
According to media reports, the OCAG also found that the BSEC had not collected fines amounting to Tk 546 million imposed on individuals and firms for violating securities rules. The amount has remained receivable for years.
The top audit body also holds the BSEC liable for the embezzlement of Tk 2.07 billion in total by Banco Securities, Tamha Securities, and Firstlead Securities. Taking advantage of the lack of strict monitoring, the brokerage houses misappropriated the funds, OCAG observed.
Roadshows that bore no fruit
The Shibli-led Commission held more than a dozen roadshows abroad in the USA, UK, Switzerland, Dubai, France, Japan and China with a large entourage of delegates on the pretext of attracting foreign investments.
"The roadshows caused a misuse of foreign currency," said former chairman of the securities regulator Faruq Ahmad Siddiqi.
"The BSEC must facilitate businessmen in line with the rules and regulations but there should be a distance between the regulator and the market players."
Though roadshows were failing to attract investments, the regulator continued such campaigns in different countries at heavy costs, added Mr Siddiqi.
While roadshows did not serve the purpose, good governance, if ensured, could boost confidence of foreign investors.
The outflow of money from foreign portfolios led to a reduction of investments of overseas investors by 48 per cent year-on-year to Tk 21.67 billion in 2023.
Frequent policy changes have also discouraged foreigners from investing in Bangladesh's stock market, said a leading broker who deals with foreign portfolios.
Mutual funds exploited to the benefit of asset managers
The Khairul-led Commission in September 2018 extended the tenure of closed-ended funds by 10 years, dampening investors' enthusiasm about pooled funds.
Due to the time extension, unit holders failed to get back their investments and returns through liquidation of the assets.
Then the Commission introduced the provision of issuance of RIU (Re-Investment Unit), bonus dividends, by the MFs, which enhanced the sizes of the funds managed by unscrupulous fund managers. The management fees charged by the fund managers increased but the RIU did not benefit unit holders as the market prices of the units have remained below the face value.
Bad IPOs
Former DSE director, Minhaz Mannan Emon said he and his board had pointed out loopholes in the IPO proposal of Ring Shine Textiles Limited but the BSEC approved the proposal.
Apart from fake placement shares, the share money deposits of Tk 2.65 billion cited in the company's IPO proposal was non-existent.
"In a meeting, we had earnestly requested the then BSEC chairman [Mr Khairul] not to approve the IPO proposal of Ring Shine," Mr. Emon said.
"It's assumed that the regulator would not have approved such a flawed proposal unless there were financial benefits," he added.
After the company's listing, local and foreign sponsors left the company by offloading overpriced shares in the market. An investigation report and an audit report said they had laundered money.
Not only Ring Shine, most of the 80 plus companies that listed in the decade to FY24 were found to have governance issues.
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