Regulator urges reforms to bourses

Star (September 26, 2010)


In a bid to bring greater maturity to the nation's bourses, the capital market regulator has asked both to plan their “demutualisation” to separate bourse management from shareholders.
However, the prime bourse opposes the move, saying it is still too immature for such a change.
The bourses are now run like a co-op of brokers that are seen as an “old boys” network to some, but to others a buffer from the glare of wide-open books and a priority of profit-making.
Securities and Exchange Commission admits that a stockmarket transition will take a long time, but says it is not too early. "That's why the commission has asked the bourses to start preparatory work for demutualisation," said SEC member Mansur Alam.
The preliminary steps include studies of demutualisation in other countries, examining legalities, pre-demutualisation discussions and workshops, Alam said. "It will be a big task, so initiatives should be undertaken now."
Demutualisation would transform each exchange from an entity owned by its mostly brokerage-owning members into a for-profit company owned by shareholders. A demutualised exchange can be freely traded on the market like any other public company.
Bangladesh's stock exchanges are now non-profit cooperative organisations, owned by the exchange members who are usually stockbrokers.
Dhaka Stock Exchange authorities call the move premature. "Our stockmarket is in a nascent stage,” said its president Md Shakil Rizvi. “It will not be wise to put a grown-up person's duty on a baby's shoulder, and it will bring no good result."
Rizvi pointed out the long road to demutualisation experiences abroad: "The New York and London stock exchanges only went for demutualisation after hundreds of years."
Although DSE has a 50-year history, it started growing only few years back, he said.
Prior to 2007, the daily average for all transactions was far below Tk 50 crore. This is now about Tk 2,000 crore. The market-capitalisation-to-GDP ratio has now crossed 30 percent from less than 10 percent.
"We, the stockbrokers, are still working hard to make the market more viable,” Rizvi said. “But demutualisation will stop that effort, as the brokerage activities will be maintained and regulated by the exchange management."
He believes that the DSE would have less focus on stockmarket expansion or development after the move.
“We ourselves will go for demutualisation when that time will come," the DSE chief said.
The finance minister has at least two times spoken in favour of demutualisation.
In March, AMA Muhith said: “Demutualisation is a must for the stockmarket maturity.” Then in July, the finance minister told parliament: “We plan modernisation of the stock exchanges through mutualisation.”
However, he never mentioned a timeframe for its implementation, and has also expressed caution. “Our stockmarket is not much developed -- we need to advance carefully,” he once said.