Star (January 24, 2011)
Participants in a high-profile meeting on the stockmarket have recommended restoring investors' confidence first.
The call came as the investors racked with anxiety in the recent debacle in the share market.
Finance Minister AMA Muhith sat with regulators, bankers, business leaders and entrepreneurs at state guesthouse Padma where the stockmarket stakeholders placed their suggestions and opinions during a four-hour discussion.
The participants recommended the formation of a high-level committee to look into what went wrong in the stockmarket, the findings of which will help bring back confidence to the investors. Later in the day, the government announced a plan to form a probe committee in 15 days.
Trading on bourses remained closed yesterday and will also remain off today. The closure of trading for many days at a stretch may hurt investors' spirits further, the participants added. The probe committee must find out who and what worked behind the recent crash in the market, they demanded.
Banks, non-bank financial institutions and insurance companies which made windfall gains through investment in the stockmarket should reinvest their profits through subsidiaries or investment wings, they said.
The discussants recommended that the clients' or investors' equity should not be calculated in the financial institutions' total investment exposure to the stockmarket. Presently, the financial institutions' investment exposure to stocks is 10 percent of their total equity and it is computed including the clients' equity.
Banks' investment exposure to the stockmarket and calculation of the exposure should also be based on cost value instead of existing market prices. A bank has to make provision for the losses in its balance sheet if share prices go down below the cost price, but the unrealised profits cannot be shown in the balance sheet, they said.
They said share prices of many companies went down drastically after their listing either through book building or direct listing, substantiating that their indicative or listing prices were higher than their fundamental prices.
In such cases, they added, there should be regulations compelling the issuer companies to buy back their shares if the prices slumped, compared with the listing or indicative prices within a certain period of time, or to reinvest the money they realised through offloading or floating shares.
Citing three companies' names, they said the companies raised thousands of crores of taka by inflating the figures in their balance sheets while listing. “Where do their shares prices stand now?” said one of the participants.
The meeting also recommended that a portion of the profit from stock investment by financial institutions' subsidiaries, which are set up for stockmarket dealings, should be kept as reserves in the subsidiary companies balance sheet to strengthen the subsidiaries' capital structure.
They also said it is time to create separate financial institutions only for the stockmarket, whose activities will centre around the capital market. Apart from the stockmarket, they can be allowed to go for equity investment in other non-listed companies. The regulator should provide 50 licences to this effect, the discussants said.
As denomination of share face value has created volatility in the secondary market, face value of all shares should be fixed at Tk 10, they suggested.
The Securities and Exchange Commission should also issue new licences to more fund managers and portfolio managers, which will bring more institutional investors to the market, they said.
It is time to allow financial analysts only to comment on the stockmarket and investment, they observed. Recently, the market has spawned too many charlatan media talkers and 'experts' who have little knowledge of the market, the participants alleged.
In many countries, including neighbours of Bangladesh, the financial analysts give comments on the share market and issue forecasts regarding the price movements, even on single scrip.
The SEC should be reshuffled and the government can convene another committee to determine the requirements for overhaul, it was suggested at the meeting.
The SEC must take long-term policies, while the stock exchanges should be demutualised, they said.
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