Prime bourse needs strengthening to act independently: Chairman

The newly-appointed chief of the prime bourse emphasizes the need for capacity building for changing the dynamics of the market.

The foremost job of the board of the Dhaka Stock Exchange (DSE) should be to take over the responsibility of approving IPO proposals.

"It's not the job of the securities regulator to deal with the IPO proposals. This is not in practice in other capital markets," said Dhaka bourse Chairman Mominul Islam in a telephonic interview with The FE.

However, he admitted the incapacity of the bourse to play the due role.

"The DSE will have to have logistics. We hope the stock exchange will be able to achieve the capacity of handling IPOs within 18 to 24 months," said Mr Islam.

On areas that require strengthening, he said the main issue of concern is a shortage of skilled manpower.

Two top positions in the management are still vacant. In any critical situation, the market always witnesses blame shifting instead of actions to address the problem, the chief of the prime bourse said.

For example, if the DSE surveillance team detects abnormal trades conducted by a brokerage firm, the management fails to take immediate measures to protect the clients of that firm without the consent of the market watchdog. The management and the board are yet to be empowered sufficiently to run independently.

"Apart from building the capacity and IT infrastructure, the existing culture will have to change and it will take some time," said the DSE chairman.

Despite being a profit making entity, the exchange has not yet established ways to engage with its stakeholders.

"This area needs attention to increase revenue for shareholders," the chairman said.

On the listing of companies, he said most of the companies had floated shares to the public, with inflated financials, but they started showing poor performances soon after the listing, the main reason why the market has not gained any fundamental strength over the last decade.

Auditors and credit rating agencies should be obligated to play their role as intended, said Mr Islam who served renowned global and local banks and other financial institutions, including IPDC Finance, before joining the DSE board.

He also said good companies do not have incentives to get listed, a key factor that needs immediate attention.

On pooled funds, Mr Islam said a capital market would not grow if the mutual fund industry and the bond market did not flourish.

Some wrong decisions by the regulators and embezzlement of investors' funds by dishonest fund managers withered the confidence of local and foreign investors in mutual funds.

Regulatory decisions extending the tenures of the close-ended mutual funds rendered foreign investors incapable of liquidating assets. Some fund managers, however, were benefited with additional management fees.

The short-term gains were negated by the long-term damage done to the MF industry.

"We will place some proposals and sit with all stakeholders and the securities regulator to address the loopholes for the sake of improving the depth of the market," said the DSE chairman.

Meanwhile, the stock exchanges last week transferred 27 companies to junk category for their failure to pay dividends for the last two consecutive years and complete the distribution of dividends approved.

The downgrading of the companies elicited negative impressions about their stocks.

Asked if the dividend payment should be the only tool to be used to decide a stock's status, Mr Islam said that is another bizarre practice prevalent in Bangladesh.

Many companies across the world refrain from distributing dividends for the sake of growth and investors keep faith in the firms' future projections.

"Unfortunately, in Bangladesh companies veer off the growth path soon after becoming public."

In the absence of good practices, the one thing investors look for is dividends in return on investments.

The lack of fixed income funds is another reason behind the subdued market.

Earlier, fixed income funds were compelled to invest in the equity market beyond their set provisions, which was not a wise decision.

Also, the corporate bond market would be vibrant if the demand side could be stronger through participation of pension funds, provident funds and gratuity funds, said the DSE head.

On investors' protections, the chairman said the previous commission had not set any example of stringent punishment for criminal conduct by TREC (trading right entitlement certificate) holders.

"Good governance and exemplary punishment against wrongdoers will have to be ensured."

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