Dhaka (The Daily Star/ANN) - Bangladesh's Securities and Exchange Commission (SEC) Wednesday unveiled a 21-point market stabilisation package, including a special scheme on compensating the retail investors who lost money to downswings.
The stockmarket regulator disclosed the much-talked-about package with short-, mid- and long-term steps a week after Prime Minister Sheikh Hasina had a talk with market policymakers and stakeholders to rejuvenate the troubled market.
The package will give only a temporary relief to the investors, said former finance adviser Mirza Azizul Islam.
"For long-term stability, the commission should increase supply of shares into the market, and after passing the immediate crisis it should focus on management instead of market indices," said Islam, also a former chairman of the SEC.
Salahuddin Ahmed Khan, who teaches finance at Dhaka University, said the plan is an initiative to change the structural format of the market.
Khan, also a former chief executive officer of Dhaka Stock Exchange, thinks there are no short-term steps to implement and all measures are long-term plans.
"The market will be stabilised in the long-run if the SEC can implement all the steps it came up with," he said.
In a press briefing, SEC Chairman Prof M Khairul Hossain said a six-member committee was formed to find ways to compensate the retail investors who traded with small investment or on credit.
The managing director of the state-run Investment Corporation of Bangladesh leads the committee, which has been asked to submit a report to the finance ministry in two months, Hossain added.
"The short-term measures can be implemented right now while the mid-term steps within three months and the long-term steps by six months," he said.
The first two steps under the short-term measures are that: banks' investment in their subsidiary would not be included as their exposure to capital market, and that long-term equity investment of a bank will not be counted in its exposure limit.
Besides, in case of provisioning stockmarket investment by banks, gains and losses would be considered instead of net loss only.
These steps will increase the capacity of banks, which are considered key institutional investors for injecting more funds into the market and have been facing a severe liquidity crisis for the last few months.
As per existing laws, the banks are allowed to invest up to 10 per cent of their liabilities in the sharemarket through equity investment or providing loan to their subsidiaries while they provision considering the net loss only.
The government as a short-term measure withdrew the 10 per cent capital gain tax on foreign institutional investors and Bangladeshi expatriates. "It would encourage more foreign investments in our stockmarket," said the SEC chairman.
The deadline for lowering the exposures of the banks that have gone exposure beyond permission limit has been extended to December 2013. The banks with merchant banking operations and brokerage activities in subsidiary form were scheduled to bring down their overexposure to the authorised limit by December 31 next year.
The merchant banks and their stockmarket related subsidiaries, non-banking financial institutions and insurance companies can raise funds equivalent to 49 per cent of their paid-up capital from anywhere - an initiative that will reduce the merchant bank and their subsidiaries' dependency for equity on their parent companies.
As per the securities rules, parent companies of merchant banks and subsidiaries provide 99 to 100 per cent equity.
"We have already made it compulsory for sponsors, directors and promoters of a company listed with any stock exchange to jointly hold at least 30 per cent stake in the firm for all time," the SEC chairman said, adding that many sponsors and directors of the listed firms have less than 30 per cent stakes.
Other short-term measures include a consensus of commercial banks in investing more in the stockmarket and assurance of insurance companies to inject more money to the market.
Under the mid-term measures, the SEC would allow investment advisory service to develop a rumour-free market. "It will compel the institutions and brokerage houses to appoint professional, efficient and experienced investment manager, said Prof Khairul Hossain.
"The commission will also allow equity research publications to ensure access to information by investors, academicians and policymakers," he said.
The mid-term measures also include formulation of guidelines for corporate governance to ensure transparency and accountability of the listed firms, and finding out ways to increase the capital of merchant banks and subsidiaries.
Under the long-term initiatives, the government will formulate financial reporting act to make qualitative improvement in accounting and auditing disclosures by the listed companies.
"The current SEC insider trading act is very weak. We will make the act more comprehensive and stern through modification. It will restore investors' confidence," said Hossain.
The small investor protection act is failing to protect the interest of the small investors. "The rules will be updated in line with the laws in developed countries," he said.
The long-term measures include demutualization of stock exchanges by next year, adopting necessary steps to make the mutual fund sector stronger and more attractive, and intensifying the supervision activities of the capital market by establishing enhanced surveillance system so that the investors are not cheated.
Stocks plunged 4 per cent to 5,372 points at yesterday's 3:00pm closing. The SEC unveiled the market stabilisation package an hour late.
Bangladesh gov't offers stimulus to small investors
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