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8 years ago

Demutualisation of bourse stabilises the market

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Demutualisation of the bourses of Bangladesh has been effective from November 21, 2013. From then on the share market of the country has remained steady and got rid of the jittery syndrome.
Historically most of the stock exchanges of the world started operation as mutually governed self-regulated organisations where profit was not the prime motive. At least the sponsors claimed so and the organisation was used to be called a non-profit organisation. Obviously the members ruled supreme and virtually the affairs of the stock exchange were run as a private members' club. It is presumed that the stock exchanges started operation from the late 17th century. There was no government authority to oversee or supervise or regulate the affairs of the stock exchanges. Securities and Exchanges Commission (SEC) as the regulatory authority of the bourse was first set up in the U.S.A in 1936. The great crash of the stock exchange in 1929 and the prevailing economic depression compelled the U.S government to set up SEC. However, SEC could not always deliver effective services and the countries fell victims of share scams from time to time.
Bangladesh Securities and Exchange Commission (BSEC) was established in 1993. Within less than two decades SEC helplessly witnessed two macabre share market crashes in 1996 and 2009-10. The irony is that both the crashes occurred immediately after Awami League came to power in June 1996 and January 2009. On both occasions thousands of innocent investors were made paupers. The people silently withstood the man-made disasters. The government set up enquiry committees. Both the reports revealed that a section of stock exchange members in connivance with some sponsors and share traders committed these nefarious crimes. Illegal methods of share trading such as manipulation, insider trading, front running, etc. were adopted. But when the Awami League returned to power in  2014, the Finance Minister was firm in implementing demutualisation of the bourse which began in 2013. It may be mentioned that during both the share scams the Ministry of Finance could not play an effective role, rather it was misled.
Before demutualisation stock exchanges were absolutely like private members' club where the whims and caprices of the members reigned supreme. There was total absence of corporate governance. Now all the affairs, including policy making, administration, operation and implementation of the decisions, are conducted by a Board of Directors neutrally constituted under the law. The Chairman of the Board is an outsider and the members of the stock exchange are minority in the board. The chief executive officer (CEO) works professionally as one is likely to do so under good corporate governance.
For the last three years the stock exchanges have been working without any sign of jittery. Before demutualisation a section of share traders would always try to create a jittery situation by raising hiccup that the market was bearish and more money would have to be ploughed in to push the price of the shares. The cry is still there, but the bourse administration is moving rationally.
The share market is moving ahead keeping pace with the economic condition of the country. It may be mentioned that the stock market is not for the pure savers who wants to ensure certain income from savings. Such people should go for bank deposit and/or national saving certificates. Investment in the share market is always risky. It is a speculative market, but that does not mean that the general investor will not come to the share market. In that case the listed companies shall have to be transparent and ensure adequate disclosure. The portfolio managers and merchant banks will have to give proper advice.
Earlier innocent investors were allured and misguided by a section of rogue traders. The then stock exchange authorities were silent and inactive. However, the possibility of any future share market crash cannot altogether be ruled out, because that will depend on the efficiency and strictness of the bourse administration. If they succumb to the tricks of the shenanigan traders, the disaster will be there. At present the share market is steady.

 

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