Regulator to continue to punish fraudsters despite concerns over market volatility

The securities regulator hits back at the critics who are now blaming the market decline on its stringent actions against stock manipulators.

"Why will the market react negatively following the regulatory actions against wrongdoers while there was a demand for reward and punishment?" said Farzana Lalarukh, a commissioner of the Bangladesh Securities and Exchange Commission (BSEC) at a round-table discussion on Tuesday.

As chief guest of the programme organised by The Financial Express and Watermark INC, Ms. Lalarukh said the securities regulator would not refrain from taking punitive measures against those responsible for fraudulent activities.

"More than 200 files are awaiting actions to be enforced. The incumbent commission now is unable to work without resolving the cases," added Ms. Lalarukh.

Following the fall of the Awami League-led regime on August 5, a new commission was formed, raising hope that it would bring reforms needed for the development of the country's equity market.

Over the decade before the political landscape changed, the market had drawn attention for all the wrong reasons -- manipulative rallies of poor-performing stocks, listing of weak companies, embezzlement of funds raised through initial public offerings, misappropriation of money pooled through mutual funds etc. The demand for actions had been intensifying at the time.

The newly-formed Bangladesh Securities and Exchange Commission (BSEC) has recently slammed huge fines on well-known market manipulators in order to bring discipline to the secondary market.

On October 1, the BSEC imposed a record fine of Tk 4.28 billion on four individuals and five firms for manipulating the stock of Beximco Ltd.

The following day, the DSEX, broad index of the Dhaka bourse, lost 133 points. In reaction, market operators said regulatory actions against the big market players gave rise to market volatility.

Ms. Lalarukh said the regulator holds a meeting every week to remove backlogs of enforcement actions.

Speaking of restoring good governance, the BSEC commissioner said the commission aims to ensure accountability of its officials first.

"Before talking about good governance in other regulatory bodies, the securities commission needs to ensure it in its office."

Previously, the market watchdog violated or suspended its own directives, issuing orders under the special section 2CC.

"We are trying to come out of that practice. We want to ensure that no one will get extra benefits," said Ms Lalarukh.

The commissioner said there had been no coordination meeting relating to the capital market in the last six years.

"We have recently held coordination meetings to increase involvement of committee members in regulatory affairs," she said.

To establish good governance in listed companies, the regulator is striving to support independent directors so that they can play their due role.

The commissioner said they were working to create a pool of independent directors to train them in association with the International Finance Corporation (IFC).

"We have already started our job. We want independent directors to act as shadow regulators in listed companies," said Ms Lalarukh.

The existing criteria set for independent directors in some cases do not allow qualified people to get appointed to companies' boards when they do not have a degree in the relevant subjects.

For example, someone may have extensive knowledge about the power sector because of his years of service in the area but will not qualify for the position of independent director without a relevant degree.

"We are trying to bring an amendment to the rules to include qualified persons in companies' boards."

The commissioner also said the BSEC would produce video contents to help improve financial literacy of investors.

"Market operators will have to present the videos before clients on a regular basis." The literacy programmes would be mandatory for market operators, added Ms Lalarukh.

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