SEC must be overhauled: analysts

Star (January 24, 2011)

The Securities and Exchange Commission (SEC) suffers from capacity constraints and requires restructuring to bring order to the stock market that sank last week, analysts said yesterday.

Without reforms, the initiative to probe the recent debacle may end in vain because the implementation of recommendations will depend on the regulator, which lacks capacity to check share price manipulation and ensure fair play in the market, they said.

They suggested a probe into the activities of SEC to evaluate whether there was any mistake on the part of the state-run agency in preventing the unprecedented plunge on Dhaka and Chittagong bourses.

Analysts' remarks came after the government announced to form a high-profile probe committee to investigate into the allegations of manipulation in the share market, which had been overheated due to consistent surge in prices in the last two years but tumbled 24 percent just in two weeks early this month.

Other government decisions include withdrawal of index breaker, enhancement of SEC's manpower and ensuring merchant banking subsidiaries to reinvest their profit from the stockmarket.

In an interview with private television station ATN Bangla, economist Khondkar Ibrahim Khaled said these steps are far from sufficient. “What we need is an overhaul of the SEC.”

Some market observers said the government's efforts indicate that it is keen to restore investor confidence and discipline the market.

“The issue of reorganisation of SEC should not be seen lightly. The government should actively consider reforming it to ensure discipline in the market," Khondaker Golam Moazzem, senior research fellow of Centre for Policy Dialogue (CPD), told The Daily Star.

He said the legal framework of SEC, its operational strength, monitoring and surveillance and decision implementation capacity should be improved to ensure long-term discipline in the market.

"If there is discipline in the market, confidence will follow," said Moazzem.

"Scope and size of the probe committee should be wider so that it can investigate a number of areas including the allegations of manipulation," he said.

The probe committee may have one or more subcommittee to evaluate the activities of SEC. The mandate of the committee may be widened to check whether there was any tendency among merchant banks and other market intermediaries to be engaged in short term trading, he said.

"The investigation should also see whether there was any move for laundering money," said the CPD research fellow.

"We expect that the main goal of the probe will be to restore discipline in the market. There should be a timeline for completion of the investigation," said Moazzem, who also laid importance on the demutualisation (separation of board from management) of stock exchanges.

He underscored an effort to ensure discipline in the banking sector which still remains as the main source of finance for industries.

Mamun Rashid, a banker and economic analyst, said formation of a probe committee alone would not bring an expected outcome unless there is a step to restructure the SEC.

Rashid said the regulator has to execute recommendations of the investigation. "Who will execute the recommendations? The SEC has a serious capacity constraint. It requires restructuring, reorganisation and empowerment for long term development of the capital market," he said.