Can stock exchange be digitised?

Digitisation is now a buzz word pervading every channel of   the government. Generally speaking, digitisation connotes perfection, speed and application of the state of the art technology. So, to achieve speedy socio-economic development digitisation is sine qua non. A few years back, Bill Clinton the former US president, wrote an article identifying the use of mobile technology as one of the five ingredients for overall economic development. . Bangladesh can claim of fulfilling one requirement out of the five. This is use of mobile telephone.

 It may be mentioned that mobile technology is one of the very important ingredients for implementing the digitisation programme. About 120 million mobile telephone subscribers are in the country, the highest in the region in percentage of the population. This factor has been immensely contributing to the digitisation process in the country. Of course stock exchange has been using latest technology in conducting the business including online placement of order.

 In one respect it is not likely to be digital. Speculation is inextricably linked with share trading. According to the dictionary meaning, speculation means the act of forming opinions about what has happened or what might happen without knowing all the facts. Benjamin Graham the author of the most celebrated book on investment says that "the intelligent investor" has stated an investment operation is one which upon thorough analysis promises safety of the principal amount and a satisfactory return. Operations not meeting these requirements are speculation. How can an investor satisfy himself to the effect that his invested amount is safe from deceit?

Reports on accounts are considered as major bets for judging the quality of shares. But the corporate deluge of the U.S.A in 2001 has shaken that image as the auditors were the villain in the great corporate disaster. Enron, seventh biggest company was the victim of that disaster. But shortly before the disaster, even the credit agencies could not foresee any sign of impending disaster. So, Benjamin Graham`s expectation that the investor has to be sure about the safety of his investment, though it is likely to be a rare phenomenon. In 1929, the worst disaster occurred in the stock market of the U.S.A  which is termed as the great crash and the U.S Economist and diplomat  J.K Galbraith wrote  an invaluable book 'The great crash 1929'.  Herbert Hoover was the President of the U.S.A at that time. Mr. Hoover said of speculation as "far worse than murder for which men should be reviled and punished".  

Still speculation will exist if the stock exchange is to run. But the only thing is that it should be well guarded. To keep the speculation, stock market gurus should not clamour for easy money for share market during the bearish  period. It may be mentioned that our stock market gurus, at the fall of the share price start cacophony for more and more money to be supplied by the banks and other financial institutions. This is a naive approach. J.K Galbraith in his book has warned that people will always speculate if only they can get the money to finance it. Professor Abu Ahmed in his very recent article in the Financial Expressed has expressed concern about the abuse of bonus shares. Unfortunately, our innocent investors have always  been victims of various  misdeeds of the share market. He has rightly said that the bonus share of the sponsor/ directors should be kept locked for a certain period. Because issuance of bonus shares is a very easy and convenient method of siphoning money from the company by the sponsor/ directors. Professor Abu Ahmed has not specified the period but to my mind it should be at least for two years. Bonus shares broaden the base of the paid up capital, and are most likely to affect the rate of dividend adversary. No laws, rules or regulations are sacrosanct. Moreover, these are to be applied considering the situation and psyche of the concerned   people. Hence Professor Abu Ahmed`s proposal should be very actively considered by the Bangladesh Securities and Exchange Commission (BSEC)

As far back as in 1720 AD, the then British Finance Minister (Official Designation  Chancellor of the exchequer) was imprisoned for share scam. In Bangladesh, share market shenanigans have been enjoying impunity. So the attempt of the BSEC, the regulatory authority of the capital market, should be alert to protect the innocent investors from the possible attack of virus since they cannot offer treatment after the attack.

The question of raising premium money at the time of IPO (Initial Public offering) should be seriously considered. Premium money is imposed on the consideration of the brilliant past performance of the company. During the hay days of the company, the sponsors have enjoyed the benefit. These companies are likely to maintain reserve. Still, if they feel that they should raise money, they can draw the exact amount  by offering  the face value.  At present, premium money is kept as a separate item in the account. It is not added to the paid up capital. An investor will receive divided on the amount reflected in the paid up capital. No special benefit will accrue from the premium amount. The big premium will make the company fat but the ordinary investor will be rickety

Mr. A M A Muhit, the Finance Minister definitely can claim one achievement  which is a major step for digitisation. That achievement is the demutualisation of both the stock exchange of the country. Both the bourses were highly reluctant to accept the demutualisation.  It has removed the members' absolute authority over the management of the bourse. The members considered stock exchange as their personal club and did not bother for any government rules and regulations or norms of corporate governance.  So long, they treated both the officials and staff of the bourse as their own personal employees. It was a great hindrance to the establishment of good corporate governance. That blockade is now over, and gradually the bourses will move towards good corporate governance of international standard.

 Still speculation will be there. As discussed above, share trading will require detailed corporate information as well as speculation. So it can not altogether shun the casino syndrome. Speculation will have to be there for boom and gloom because that is the life blood of a stock exchange. So, we never expect and it will not be practical to think that a stock exchange can be 100 per cent digital.

rezaulparvaz@live.com