Star (January 25, 2011)
The government must restructure the Securities and Exchange Commission (SEC) as part of its moves to salvage the sinking stockmarket and restore investors' confidence, said former Bangladesh Bank deputy governor Khondkar Ibrahim Khaled yesterday.
“This SEC will not be able to rescue the market. All problems are rooted in the regulator; there is no way but to restructure it,” he said in an interview with The Daily Star.
His comments come as the government on Sunday announced a number of steps including forming a high-profile committee to probe the allegations of stockmarket manipulations.
Khaled said the country's stockmarket has expanded tremendously in the last few years. “About 33 lakh people are on the market now. A huge number of university graduates have also thronged the market, as jobs are scant, solving unemployment problem to some extent.”
“These are all good signs. If we help it survive, it will create employment and develop the economy. But a syndicate is disturbing the market's normal operation again and again. This syndicate has caused harm in 1996. Now the severity of damage is more intense.”
He said 15 cases were filed against suspected market manipulators in 1996, but none was punished. There are stay orders against all of them. “Even, the lawyer who took initiative to revive the cases on the part of the SEC was removed.”
“Irrespective of the political governments in power, the syndicate has been able to control the SEC,” he alleged. “The main problem lies here. The SEC should control the stockmarket. The market will never be stable if the SEC runs on the advice of the syndicate.”
The solution lies in the restructuring of SEC. If the government reconstitutes it, the steps taken Sunday will work, said Khaled, also the chairman of Bangladesh Krishi Bank.
Although he declined to give hints about the possible masterminds behind the stockmarket collapse, he said: “The government has to be careful about accepting advice from political advisers. The authorities should sit with professionals before taking any decision.”
Part Two
The government should bring down the price-earning ratio below 20, and if possible below 15, for the sake of the stockmarket, said a former deputy governor of the central bank.
There is nothing to be satisfied with a 29 PE ratio, said Khondkar Ibrahim Khaled.
"India has a huge stockmarket. But they are even worried about their PE ratio at 18. Our PE should be brought down gradually,” Khaled said.
The PE ratio of a stock is a measure of the price paid for a share relative to the annual net income or profit earned by the company per share. P/E reflects the capital structure of the company.
The former Bangladesh Bank official said the price drop had become inevitable on the stock exchanges and been normal now compared to how it went up before.
“The SEC seems active when prices go down. What did it do when prices increased astronomically?"
He also called for a probe committee to look into the role of the members of the Securities and Exchange Commission (SEC) during the surge of indexes.
“The probe's terms of references must try to find out the persons responsible for taking up the prices too much and then brining those down near to the ground. There is a possibility that the same people were involved in both cases.”
Khaled also blamed the SEC for making and changing its decisions overnight, an accusation already admitted by the regulator.
“Many people were benefited from its overnight shift in the decisions. The SEC has created opportunity for them to profit, so it should go for long-term policy,” he said.
“There is no doubt that SEC has failed. It has either collaborated with the manipulators or showed great negligence.”
Khaled, also the chairman of Bangladesh Krishi Bank (BKB), said he did not believe that money that went out of the market would ever come back. According to many analysts, about Tk 10,000 crore has been siphoned off from the market, affecting 20 lakh investors more or less.
“Despite huge losses, the retail investors are still waiting for opportunities to enter the market again. Their confidence has to be restored. It, however, will take time.”
Khaled also called upon the government to take steps so the retail investors do not sell their stocks out of panic. To restore their confidence, the government needs to start probe immediately, restructure SEC quickly, revive the 1996 cases and find out the responsible persons behind the unusual rises and falls in the market.
He said the government steps to restore confidence to the investors are a step forward. “But these steps are not sufficient. They might work for the time being. But the steps must be driven by the restructuring of the SEC.”
“The market will pick up if the SEC overhauls and other steps go simultaneously. Otherwise, I doubt whether the market will revive,” he said.
The former deputy governor said it would not be wise to allow all banks to reinvest their profits from stock trading in the bourses.
“Only five banks have made profits from stock trading. Of those, three made profits over Tk 200 crore, and these three, for example, should be allowed to reinvest their profits only for four to five months.”
“It will not be wise to involve all banks in the rescue process. It's not the bank's job to be engaged in the stockmarket. They may invest a negligible amount. They have to operate within the laws of the central bank,” he said.
Otherwise, there will be a banking crisis, like that in the stockmarket now, he cautioned.
The BKB chairman said it would also be unethical and illegal to allow banks to use depositors' money in the unproductive and speculative market.
“The banks' money is not their own. It's people's money. So, they cannot use the money in unproductive sector. But the central bank may allow doing this for a rescue purpose, and that must be for a short period.”
He also urged the government to appoint efficient lawyers to deal with the 1996 cases. “The finance minister has said witnesses are not available. But if the cases are revived and efficient lawyers are appointed then the most affected general investors will try to believe that the government is trying, which will help restore the much-needed confidence.”
“The cases should be revived even if the witnesses are not available,” he said.
He also lent support to the central bank, which is accused of being too lenient to the banks overexposed to stockmarket. “In theory, the stockmarket does not fall under the purview of the Bangladesh Bank. So it took relaxed approach to some extent. But it should have been cautious earlier.”
Khaled said the central bank was not well-informed about the stockmarket situation in advance. “Bangladesh Bank has taken some steps to rein in their overexposure, which should have been taken much earlier.”
He said the real economy could be affected if the banking sector is affected by the stockmarket debacle. But at the moment, there might not be any impact on real economy, as too much money was not raised from the market for industrial uses, as seen globally.
The government must restructure the Securities and Exchange Commission (SEC) as part of its moves to salvage the sinking stockmarket and restore investors' confidence, said former Bangladesh Bank deputy governor Khondkar Ibrahim Khaled yesterday.
“This SEC will not be able to rescue the market. All problems are rooted in the regulator; there is no way but to restructure it,” he said in an interview with The Daily Star.
His comments come as the government on Sunday announced a number of steps including forming a high-profile committee to probe the allegations of stockmarket manipulations.
Khaled said the country's stockmarket has expanded tremendously in the last few years. “About 33 lakh people are on the market now. A huge number of university graduates have also thronged the market, as jobs are scant, solving unemployment problem to some extent.”
“These are all good signs. If we help it survive, it will create employment and develop the economy. But a syndicate is disturbing the market's normal operation again and again. This syndicate has caused harm in 1996. Now the severity of damage is more intense.”
He said 15 cases were filed against suspected market manipulators in 1996, but none was punished. There are stay orders against all of them. “Even, the lawyer who took initiative to revive the cases on the part of the SEC was removed.”
“Irrespective of the political governments in power, the syndicate has been able to control the SEC,” he alleged. “The main problem lies here. The SEC should control the stockmarket. The market will never be stable if the SEC runs on the advice of the syndicate.”
The solution lies in the restructuring of SEC. If the government reconstitutes it, the steps taken Sunday will work, said Khaled, also the chairman of Bangladesh Krishi Bank.
Although he declined to give hints about the possible masterminds behind the stockmarket collapse, he said: “The government has to be careful about accepting advice from political advisers. The authorities should sit with professionals before taking any decision.”
Part Two
The government should bring down the price-earning ratio below 20, and if possible below 15, for the sake of the stockmarket, said a former deputy governor of the central bank.
There is nothing to be satisfied with a 29 PE ratio, said Khondkar Ibrahim Khaled.
"India has a huge stockmarket. But they are even worried about their PE ratio at 18. Our PE should be brought down gradually,” Khaled said.
The PE ratio of a stock is a measure of the price paid for a share relative to the annual net income or profit earned by the company per share. P/E reflects the capital structure of the company.
The former Bangladesh Bank official said the price drop had become inevitable on the stock exchanges and been normal now compared to how it went up before.
“The SEC seems active when prices go down. What did it do when prices increased astronomically?"
He also called for a probe committee to look into the role of the members of the Securities and Exchange Commission (SEC) during the surge of indexes.
“The probe's terms of references must try to find out the persons responsible for taking up the prices too much and then brining those down near to the ground. There is a possibility that the same people were involved in both cases.”
Khaled also blamed the SEC for making and changing its decisions overnight, an accusation already admitted by the regulator.
“Many people were benefited from its overnight shift in the decisions. The SEC has created opportunity for them to profit, so it should go for long-term policy,” he said.
“There is no doubt that SEC has failed. It has either collaborated with the manipulators or showed great negligence.”
Khaled, also the chairman of Bangladesh Krishi Bank (BKB), said he did not believe that money that went out of the market would ever come back. According to many analysts, about Tk 10,000 crore has been siphoned off from the market, affecting 20 lakh investors more or less.
“Despite huge losses, the retail investors are still waiting for opportunities to enter the market again. Their confidence has to be restored. It, however, will take time.”
Khaled also called upon the government to take steps so the retail investors do not sell their stocks out of panic. To restore their confidence, the government needs to start probe immediately, restructure SEC quickly, revive the 1996 cases and find out the responsible persons behind the unusual rises and falls in the market.
He said the government steps to restore confidence to the investors are a step forward. “But these steps are not sufficient. They might work for the time being. But the steps must be driven by the restructuring of the SEC.”
“The market will pick up if the SEC overhauls and other steps go simultaneously. Otherwise, I doubt whether the market will revive,” he said.
The former deputy governor said it would not be wise to allow all banks to reinvest their profits from stock trading in the bourses.
“Only five banks have made profits from stock trading. Of those, three made profits over Tk 200 crore, and these three, for example, should be allowed to reinvest their profits only for four to five months.”
“It will not be wise to involve all banks in the rescue process. It's not the bank's job to be engaged in the stockmarket. They may invest a negligible amount. They have to operate within the laws of the central bank,” he said.
Otherwise, there will be a banking crisis, like that in the stockmarket now, he cautioned.
The BKB chairman said it would also be unethical and illegal to allow banks to use depositors' money in the unproductive and speculative market.
“The banks' money is not their own. It's people's money. So, they cannot use the money in unproductive sector. But the central bank may allow doing this for a rescue purpose, and that must be for a short period.”
He also urged the government to appoint efficient lawyers to deal with the 1996 cases. “The finance minister has said witnesses are not available. But if the cases are revived and efficient lawyers are appointed then the most affected general investors will try to believe that the government is trying, which will help restore the much-needed confidence.”
“The cases should be revived even if the witnesses are not available,” he said.
He also lent support to the central bank, which is accused of being too lenient to the banks overexposed to stockmarket. “In theory, the stockmarket does not fall under the purview of the Bangladesh Bank. So it took relaxed approach to some extent. But it should have been cautious earlier.”
Khaled said the central bank was not well-informed about the stockmarket situation in advance. “Bangladesh Bank has taken some steps to rein in their overexposure, which should have been taken much earlier.”
He said the real economy could be affected if the banking sector is affected by the stockmarket debacle. But at the moment, there might not be any impact on real economy, as too much money was not raised from the market for industrial uses, as seen globally.
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