In its latest directive, the capital market watchdog yesterday asked the stock exchanges to promote companies to higher category only if the companies can complete dividend distribution within the fixed time limit.

The Securities and Exchange Commission (SEC) asked Dhaka and Chittagong stock exchanges to amend relevant provisions of the Settlement of Stock Exchange Transactions Regulations 1998 to adopt the new requirements with effect from June 1.

The companies in A and B category now need to distribute dividend within 60 days of declaration and submit the report to SEC and stock exchanges by seven days of expiry of the dividend declaration deadline to retain their position. "Otherwise they will be relegated to lower category," the SEC directive said.

The Z category companies will be promoted to A or B category from the day following submission of their compliance reports to SEC confirming payment of the declared dividend within the deadline.

If the companies are able to fully distribute dividend within the time limit and report the same by seven days, they will be promoted to higher category from the next day. Otherwise they would be downgraded to lower category.

According to present provisions in the Settlement of Stock Exchange Transactions Regulations 1998, companies are promoted once they declare dividend, whether or not they disburse full amount of dividend money to shareholders.

This provision led to many incidents of dividend default, capital market sources said adding, once implemented, the provision will encourage companies to complete dividend disbursement in time.

Companies declaring 10 percent or above dividend fall in A category and companies declaring less than 10 percent in B category while companies which do not declare any dividend fall in Z category.