Towards activating stock market
Our stock market has been crawling and limping since the painful tragedy in 2010. Thousands of small investors lost their last farthing. Indebtedness snatched away many dreams. Cases of suicide appeared in the newspapers. Many families were broken. The stock market disaster depicted great human tragedies.
There was another side of the picture. A few powerful clever persons played the role of blood- suckers. Thousands of crores of taka were taken out by them from the market at the cost of small investors. It is alleged that part of the money was sent abroad. Rest of the money remained within the country, but outside the stock market.
An Enquiry Committee was set up in February 2011 to probe into the matter and the committee submitted its report on March 31, 2011 strictly within scheduled times. Public expectations were high on implementation of the report. But nothing tangible transpired.
On the contrary, the commission members were harassed by those, whose names appeared in the report. No case was filed against alleged market players, some of whom filed at least three cases against the chairman of the probe committee.
All the three cases, one in the High Court and two in the Judge's Court, were dismissed in due course. The press and people raised questions: Where from the alleged wrong-doers derived such audacity? The matter was raised in the Parliament by some representatives of the people. Angry members voiced peoples sentiment. Even then, nothing tangible transpired.
Two years have elapsed since stock market fell flat and remained so. Mighty market makers on the one hand raised voices of hopes and dreams and on the other hand hurled brickbats against bankers, journalists and critics. These saviors did not bring their own money in the market. They relentlessly pleaded for injecting money by the banks and investors. Investors burnt their fingers. They preferred to wait and see.
The crux of the problem is that, those who are allegedly responsible for crushing the market and looting bootees, are still managing the stock market either from the front desk or from the rear control desk. Thousands of investors have learnt a major lesson through some painful ordeal. Hence they have no confidence on those mighty yet notorious market managers. This explains why investors are suspicious and standing at a distance.
Small measures here and there will not bring any meaningful change. Confidence stands totally shattered. For restoration of confidence, honest commitment of highest degree is necessary. Commitment must be reflected in perceivable actions.
For sustainable improvement in restoring confidence in investors in the market, essential conditions are: (i) separation of market operators from primary regulator and (ii) assumption of ultimate regulator's role by BSEC.
Share Market Probe Committee proposed twenty five recommendations in its report submitted to the government. These are dormant in the cold-chamber.
The Governing Board of Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) may be mentioned as primary regulators of share market, as they are responsible for implementing market rules and monitoring operations.
On the other hand, market players are either investors or working on behalf of investors. They are operators in the market, while members of the Board are primary regulators. At present operators and their nominees are members of the board. Here arises the conflict of interest. Regulators are required to discipline the operations. Operators may bypass rules and regulations and may try for unethical gains. If operators and their nominees are given the role of regulators, they will protect the wrong-doers. This is exactly what is happening now. Board members, players and accomplices have joined together to blow-up the market in 2009 and 2010, then crash it to take out money from the market. Small and innocent investors suffered. They have no confidence in the present stock exchange management. Stock Exchange management must change to restore confidence of investors.
Change has already taken place in other countries where Stock Exchanges are demutualised. Demutualisation means separation of operators from primary regulators (governing board of stock exchange). Only separation may resolve conflict of interest facilitating restoration of confidence among common investors.
Conversely speaking, demutualisation means disarming the market-players and to restrain them from manipulation. At present, market-players are the owners of stock market. They will not easily surrender their manipulating powers for the purpose of good governance. We can cite the example of India. Bombay Stock Exchange turned a deaf ear to Indian government's request for demutualisation. Stock market owner-cum-players stated in strong terms that they would not 'surrender' their rights. Indian government had strong commitment and created a new Stock Exchange in the government sector. Newly established 'National Stock Exchange (NSE)' was based on the principles of demutualisation. Share-holders of NSE were known for their integrity and keeping aloof from stock-business. NEC, therefore, immediately earned confidence of general investors and earned large market share. Bombay Stock Exchange crippled. In an attempt for survival, the Bombay Stock Exchange finally decided to demutualise to get back investors' confidence.
DSE is no exception. They will never give-up manipulating powers unless they are compelled to do so. Our government failed to show its commitment. Instead, the government negotiated with the market-players, who prepared a draft proposal for so-called 'demutualisation'.
It has been learnt that player-cum-owners of DSE agreed to have majority members in the Board from neutral persons! Neither conceptually nor practically, this arrangement can be termed as demutualisation. Proposed 'demutualisation' proposal is at best a camouflage to deceive the innocent investors.
Under demutualisation, the Stock Exchange governing board should remain completely free from any influence of market-players or their associates. No market player should sit in the governing board.
The other important recommendation is 'institufinalisation' of BSEC, the ultimate regulator. Probe into the share market scam revealed that the then SEC acted as a partner of market players and not as regulator. It was a 'distracted organisation', far from an institution. Chairman and members were changed by another set of persons. But organisational behaviour did not change much. Player placed as regulator finds it difficult to change previous role. We have seen successful chairmen of SEC in the past.
Finally, systemic change, technological improvement and organisational development are all important and desirable. But the system, technology or organisation is run by personnel. Machine is important. Man behind the machine is much more important. First-step towards institutionalisation of BSEC is appointing the right type of professional personnel at the top hierarchy.
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The writer is Managing Director of Bangladesh Krishi Bank.
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