The new commission of the securities regulator considers redefining the jurisdiction of the Capital Market Stabilisation Fund (CMSF) in a way so that it can perform in the best interest of market investors.
The Fund has disbursed funds out of investors' unclaimed dividends to market operator Investment Corporation of Bangladesh (ICB) and sponsored a mutual fund.
The investments are controversial as they do not fall within the purview of the CMSF's operations, according to newly-appointed Chairman of the Bangladesh Securities and Exchange Commission (BSEC) Khondoker Rashed Maqsood.
The Fund also kept deposits with the Community Bank.
"It's not the job of the CMSF," he said in a recent meeting with representatives of the CMSF. Mr Maqsood was critical about the role of the CMSF under the watch of the previous commission, said a source who attended the meeting.
The Fund representatives called on the BSEC chief, pressing for the formation of a new board upon expiry of its previous board on August 31. Now, there is no board in the company.
The previous commission introduced the CMSF through rules that came into effect in June 2021 to help revitalise the market through liquidity support along with settling investors' claims of undistributed/unsettled dividends.
The CMSF comprises undistributed or unsettled dividends -- cash and stocks -- and rights issues.
The BSEC chief said the CMSF should have its functions limited to collecting unclaimed/unsettled dividends and rights shares and settling investors' claims.
At the meeting, the CMSF representatives were informed of a probe to begin to look into its expenditures and to find out if there was any breach of conduct on its part.
The CMSF earlier decided to lend investors' unclaimed dividends to market operators at lower interest rates to boost liquidity flow into the market. Later on, it abandoned the decision when questions were raised about whether it had any authority to conduct lending activities.
At the meeting with the BSEC chief, CMSF officials, however, defended their position, saying they had disbursed the funds as FDR (fixed deposit receipt).
Mr Maqsood reprimanded the CMSF for putting in efforts to drive up stocks through injection of funds. He, however, spoke in favour of forming a new board of the CMSF.
When BSEC commission members raised questions about the necessity of the CMSF, its staffers gave detailed accounts of how they had helped collect funds from issuers.
They said undistributed dividends should be realised and then the BSEC itself could decide how to utilise the funds.
Referring to an issuer company that had misappropriated investors' dividends worth Tk 200 million, the Fund officials cast light on challenges to realise dividends that were difficult to trace.
A top CMSF official told The FE, preferring anonymity, that investors feel safe that unpaid dividends are under the control of an authority. "But many listed companies don't want the CMSF to exist so that they can avoid settling unclaimed dividends."
After the CMSF's introduction, many issuers showed reluctance in transferring investors' dividends to its accounts even though the regulator warned them about legal actions.
At one stage, the CMSF launched a special audit to determine the actual amount of undistributed dividends of 45 companies.
Some market leaders with good reputation were even identified to have refrained from distributing dividends.
Talking to The FE, Md. Ashequr Rahman, managing director of Midway Securities, said the concept behind the formation of the CMSF was good. Many issuer companies that never felt the necessity to settle investors' claims felt compelled to transfer the funds to the CMSF. Dividends remained undistributed for years. Issuers availed of the benefits of the undistributed dividends.
But the matters of concern surrounding the CMSF are the formation of its board, its decision to invest realised dividends and its unnecessary expenditures, said Mr Rahman.
He also said the CMSF board had not included any representatives from issuers and market operators, who could play a role in inspiring the issuers to hand over the funds.
Secondly, the CMSF floated a mutual fund whose NAV has gone down the cost price, said Mr Rahman, adding that investors' funds should not be put into risky investment vehicles.
"The CMSF should lay emphasis on realising undistributed dividends and identifying investors to settle the payments only."
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