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Restructuring the capital market


IT is no overstatement to say that the capital market of the country remains rather dormant after the 1996 scam that afflicted it. Many things have happened since that shocking experience of a melt-down in the market. The Securities and Exchange Commission (SEC) streamlined its watchdog functions over the affairs of the market, automation and other reforms were carried out in the bourses. The consequences of all of these activities have led to a semblance of a recovery. But it is far from being an invigorated market -- both in terms of depth and transaction -- that is desirable. The resurgence of the market remaining in chains is due mainly to not addressing some other core factors. Clearly, the market will not revive until these issues are well taken care of. The SEC Chairman drew attention to them in an interview with this paper that was reported on Wednesday. The SEC Chairman's contention suggests that mainly his regulatory body needs greater empowerment over the affairs of the companies to be able to clean up the market. This will, which in turn, boost investors' confidence which is the key to reviving fully the market in line with its true potential.
The SEC Chairman's urging of further reforms no doubt merits consideration. But the mess in the market calls for more decisive steps and developmental measures. One of them can be the delisting of the companies from the stock market that have used questionable financial reports, including those that have long defaulted on their payment of dividends to shareholders. One may say that this surgical exercise may reduce turnover in the market. But such a phenomenon is likely to be transient. The delisting would send a clear signal to the companies that in order not to suffer from such action, they would have to keep their affairs clean, responsible and transparent. Only companies practising such values would remain in the market and raise investors' confidence in them. The resurrected confidence in a cleaner market can be an antidote like no other in persuading the investors to return to it in far greater number than at present.
Not only further empowering the SEC, new laws will have to be created and enforced to deal with unscrupulous activities. The companies should be given clear guidelines on the selection of their board members so that only qualified members are chosen. Companies willing to float initial public offerings (IPOs) should be obliged to make public the financial report of past two years audited and vouchsafed by a third party accountancy. In the event that a financial report is found to have been concocted, the accountancy firm, along with the company, should be made to stand on the dock.
The existing lack of depth of the capital market has been long pointed at as one of the major reasons for its constricted state. Off-loading the government-held shares of profitable state-owned enterprises and autonomous bodies was recommended long ago as a way of enhancing the market's appeal among intending investors. Indications were also given several times from official sources about the imminent offloading of such shares. But nothing happened afterwards. Therefore, it is imperative to carry out such offloading to completion at the soonest.
The SEC, Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE) will have to be manned by competent persons. Further recruitment for these bodies and training and retraining of their officials will have to be carried out to this end. A training centre should be created to provide courses on the existing laws and ethics of the market. Before a broker can trade shares, he or she should attend a course and pass comprehensive tests to obtain his or her license. The overall aim ought to be not one of going for some short-term measures to create an illusive appearance of resurgence in the market. It should be one of rebuilding the market from bottom up, on strong foundations, for its sustainable growth and flourishment.