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Regulator defends floor price as a tool to protect retail investors

They would have been in trouble "had we not introduced it", says BSEC chairman

FE REPORT | December 06, 2022 00:00:00

Prof Shibli Rubayat Ul Islam, chairman of the Bangladesh Securities and Exchange Commission, speaking at the ERF seminar. — Collected

The securities regulator has continued to keep the price movement restriction in place, even though it restrains the market operation, because of the dominant presence of individual investors.

More than 80 per cent investors of the country's stock market are retailers, as opposed to the global scenario where institutional investors overshadow individual ones.

The small investors would have been in trouble "had we not introduced the floor price", said Prof Shibli Rubayat Ul Islam, chairman of the Bangladesh Securities and Exchange Commission at a discussion on prospects and challenges facing the capital market.

The bourses would have seen immense selling pressures by the investors who took out margin loans to inject money into stocks and are now having to pay back, he added.

"We had to introduce the floor price in an awkward situation. I am an officer of the IOSCO (International Organization of Securities Commissions) and personally I do not want the floor price."

The solution to the crisis will not be permanent, said the BSEC chairman at the programme as the chief guest.

The event was also graced by Md Eunusur Rahman, chairman of the Dhaka Stock Exchange (DSE); Asif Ibrahim, chairman of the Chittagong Stock Exchange; immediate past president of the Bangladesh Association of Publicly Listed Companies Azam J Chowdhury, and vice president of Bangladesh Merchant Bankers Association Md. Moniruzzaman.

Referring to the investors' reliance on quick gains from stocks, Prof Shibli Rubayat Ul Islam said, "The capital market will not provide money for daily shopping. Investors will be benefitted from long-term investments."

At the programme organised by the Economic Reporters' Forum in the capital, he highlighted the hurdles that the present commission had to navigate at the start of its work. It was formed in an adverse climate in the middle of the pandemic when the offices of the market intermediaries were shut down.

The head of the regulatory body promised that the strategic changes that the commission had brought would be benefiting investors in the long run overcoming the short-term hiccups.

He also stressed the need for financial literacy of investors for the development of the stock market.

The investment capacity of people will increase with higher disposable incomes in the future, but they will benefit from the market if they can make wise investment decisions based on knowledge, Prof Islam said.

He said Bangladesh's economy had proved to be more resilient than many developed countries amid the pandemic and then the Russia-Ukraine war.

"The volatility of indices of many countries indicates how much their markets were unstable after the outbreak of Covid-19. But our market was stable at that time."

Drawing attention to corrupt practices in business, Prof Islam said the commodity exchange would be brought in to eliminate the scope of under-invoicing and over-invoicing in exports and imports.

He said the real estate investment trust (REIT) to be introduced would help streamline the housing market.

In the current scenario, buyers often do not get flats even after the full payment, and the completion of projects often takes long after the deadlines.

The REIT will collect funds from general investors like mutual funds by issuing units. Investors will then receive dividends against the funds gathered for constructing housing and multipurpose complexes. They will also be allowed to transfer their units of the asset-backed securities in the way they do in case of MFs.

In many countries, the companies that pool such funds are obligated to distribute more than 90 per cent of their profits.

The regulatory body has also considered bringing in new products to provide cushion against any crisis in the garment industry, Mr Islam said.

After the Covid outbreak, garment factories were shut down facing the cancellation of orders though the manufacturing process had already begun.

"The banks, manufacturers and workers fall into trouble in such a situation. Funds can be pooled to support the manufacturers."

The BSEC chairman said expenses of the listed companies had gone up for their strict compliance with the corporate governance code. "We are thinking about exemptions for the top category companies."

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