Demutualisation has been discussed among the market stakeholders in Bangladesh for 15 years. Some thought that it could be a magic to heal all the ills of the stock exchanges. Some thought it would be another energy burning futile exercise. The debates continued for years. Challenges came from stockbrokers. 'Demutualisation? Over my dead body!', said a stock exchange chairman 15 years ago that has been widely quoted by the demutualisation experts working on case studies around the world. However, Exchanges Demutualisation Act 2013 was finally hammered out in the Jatiya Sangsad in 2013.
Backed by a board comprising of equal number of the brokers and the non-brokers, the chief executive officer (CEO) of the Chittagong Stock Exchange (CSE) was first to propose deemutualisation. The CSE board had always claimed that it had most of the qualities of a demutualised exchange. Only thing missing was that the exchange was not giving away profit to its owners. In early 2001 a presentation in CSE on the proposal was blocked halfway. Later the same year an Asian Development Bank (ADB)-appointed consultant also failed to make a more detailed presentation in Dhaka to a bigger audience. His presentation was jettisoned in the very beginning by a rowdy crowd of stockbrokers who refused to hear about the benefits the proposed change would bring for them. The consultants who had designed and seen many changes in the stock markets worldwide enjoyed the event with little embarrassment but with much amusement.
However, because of the steadfastness of the Bangladesh Securities and Exchange Commission (BSEC), backed by top government officials, the stock exchanges of Bangladesh sailed in the uncharted water of "demutualisation" in 2013. There were three major generic objectives. Demutualisation was a process in pursuit of:
1. Establishing a world-class stock exchange. Earlier,  the integrity of the management of stock exchanges was under question as the traders were simultaneously doing three jobs - framing their own rules, implementing the rules and also judging people who breaks those rules. Good governance was visibly absent. So the demutualisation theory came to separate the trading right holders from the rules-writing body.
2. Forming a market for the investors and run by their representatives. Whatever development is made the investors' interest will be of foremost consideration. There are commercial reasons for a stock exchange to conduct serious surveillance and to have tough listing regulations.
3. Making profit from the stock exchange operation. Stock exchanges can be cash cow. Without much effort in sales, money keeps coming in when a working trading platform is offered to the traders. Largest source of revenue is however the listing fees. Entrepreneurs in need of capital pay fat fees to the exchanges which facilitate the trade of companies' shares. Commercially-driven stock exchange would offer more services and attract capital raisers as well as the liquidity providers. Not sales, but marketing efforts are required. Find the missing elements in the service bundle and take corrective measures. The objectives have not been achieved yet. The market in Bangladesh is incomplete so far. It comprises of equity shares only.  The investors do not have bonds, derivatives, commodities, interest rates, ETF, currency and many more possible products. A demutualised exchange has always been private and for natural commercial motive should have proper survey on the possible products for the investors. Bangladeshi bourses are short of this agenda. Besides, no attempt has yet been made to increase the income of the exchanges.
Though the exchanges have majority-independent boards, the influence and inspiration of "independence" has never been exercised. Â
Three years have passed since the Mutualisation Act was passed but there is not yet any new offer of business expansion from the bourses to the investors.  Moreover, the complaints from the investors (clients of the brokers) keep coming and piling up for settlement.
The exchanges are inactive in yielding profit for the shareholders and have not offered any new avenue to the entrepreneurs to raise fund. Â
Complaints of low capital flow into the markets and less turnover are only childish. Stock exchanges have not attained any object-oriented reforms. Exchanges are not accessing the capital which could push the markets towards a paradigm shift which is needed to push forward other components in line with high gross domestic product (GDP) growth of the country. Strategic partnership and initial public offering (IPO) could be immediate actions.
It is normal for a private sector business to raise fund and to invest in new products and services. Customers would pay for quality services. Sure. On the way to demutualisation, the bourses have been corporatised only one step beyond the club model. It is nowhere close to the interest of the investors.
The solutions have been enumerated well in the very Demutualisation Act and in the Schemes. Planning has been done long three years ago and what is now needed is implementation. Inclusion of strategic partners and offering of shares of the bourses to public are absolute need of the hour. Â
The stakeholders must not wait for BSEC to spoon-feed them continuously. The private sector should quickly complete the demutualisation and prepare a post-demutualisation business model which is long overdue. It is so very disheartening that stock exchanges are neither offering shares through IPO nor through a strategic partner. Â
Observations and remarks are of the writer’s own and may not reflect policies, objectives and actions of any project or organisation he is working in.
maroof@dhaka.net
Stock exchanges yet to derive benefits of demutualisation
Wali-ul-Maroof Matin | Published: September 21, 2016 00:00:00 | Updated: February 01, 2018 00:00:00
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