Belated regulatory actions amid stock anomalies

Nashir Uddin | Published: August 31, 2018 21:30:48 | Updated: August 31, 2018 21:35:24

Bangladesh Securities and Exchange Commission (BSEC) and the Dhaka Stock Exchange (DSE) have taken a number of initiatives of late to arrest alleged irregularities and protect the interests of the general investors. Although deemed by many a sort of late realisation on part of the stock market regulator, a section of the market analysts have welcomed the moves to tighten grip on foul players in the market as part of stopping unusual rise of small-cap companies' share prices.

Prices of some stocks -- especially the small capital and junk ones -- reached abnormal high during the last few months. These items maintained huge rise with sharp gains in consecutive sessions mainly based on speculations and apparently without any defined reason whatsoever. Performances of most of these companies are not very good. Some of the companies even could not declare annual dividend on a regular basis as they are either not in production fully or producing losses years in, years out, for some unidentified reasons. There are also some companies that somehow managed to hang on their respective categories declaring same or minimum dividend for years to maintain the status quo. Even prices of some new issues were also manipulated surprisingly.

Stakeholders and market insiders are of the view that a syndicate is out to make big gains at the cost of general investors' enormous plight and it is mainly them who are controlling the shares of small-cap companies. Prices of some stocks even increased up to 1,000 per cent within a short span following increased participation by investors with no reason to substantiate the price hikes.

 On every occasion, the companies in question were served notice once or twice asking reason behind unusual price rise and in every case there was a query response in identical language that read 'there is no undisclosed price sensitive information (PSI) of the company for recent unusual price hike of shares.'

Against this backdrop, DSE stepped in with beefed up role of monitoring and evaluation. On July 18, the bourse decided to delist Rahima Food Limited and Modern Dyeing and Screen Printing Limited, as prices of both the stocks continued to rise abnormally although both the companies remained out of operation for years. On August 06, the DSE decided to review performance of 15 non-compliant and non-performing listed companies in line with the specific regulation. These companies failed to declare dividend (cash/stock) for a period of five years from the date of declaration of last dividend or the date of listing with the Exchanges. The securities are: 1. Meghna Pet Industries, 2. ICB Islamic Bank, 3. Dulamia Cotton Spinning Mills, 4. Samata Leather Complex, 5. Shyampur Sugar Mills, 6. Zeal Bangla Sugar Mills, 7. Imam Button Industries, 8. Meghna Condensed Milk, 9. Kay & Que (Bangladesh), 10. Savar Refractories, 11. Beximco Synthetics, 12. Jute Spinners, 13. Shinepukur Ceramics, 14. Sonargaon Textiles, and 15. Information Services Network.

DSE said that the share prices of these companies were increasing abnormally, which was due to their small number of shares in the market. The syndicates take advantage of this and make large sums of money from the stock market riding on small-cap securities.

Analysts are, however, of the opinion that the two consecutive actions by DSE have apparently prompted BSEC to step up its effort to check price manipulation of stocks. The securities regulator on August 16 ordered the stock exchanges to suspend the share trading of Monno Jute Stafflers, BD Autocars and Legacy Footwear for 30 sessions, following 'abnormal' price hikes and 'unusual' trade volumes of the stocks in line with the Securities and Exchange Ordinance, 1969. BSEC also formed a committee to look into the incidents of abnormal price hike and unusual trade volume of BD Autocars and Legacy Footwear. The two-member body will submit report within 30 working days.

Besides, the market watchdog sent five companies -- Monno Ceramic Industries, Kay & Que (Bangladesh), Aziz Pipes, Stylecraft, and Dragon Sweater and Spinning -- to the spot market for share trading until further order considering their unusual price movements, among others. In the spot trading, an investor is allowed to buy shares of a company only when his account has cash money; none is allowed to buy shares against sales proceeds. The commission has, however, decided to investigate the reasons behind irrational increase in the prices of shares, and look into possible insider trading, price manipulation, and securities rules violations after detecting anomalies in their share trading.

In the wake of these recent actions, BSEC and the bourses seem to have taken a tough stance against foul playing in stock market at long last. The share prices of the listed companies in question nosedived consequently in the immediate aftermath of the regulatory action, but surprisingly started surging soon after. Once again, it unfolds the mysterious influence of a vested quarter that's always out to make money at any cost. One may argue that it's too late to serve the interest of general investors, as authorities failed miserably to take any prudent action timely or beforehand to check abnormal price hike anyway.

In fact, the question of strong surveillance and regulatory role comes here. No doubt, failure to arrest abnormal price hike of certain stocks in recent months is linked with regulatory failure on part of both the bourses and the BSEC. None of the authorities could deal beforehand the price manipulation issue. The recent regulatory actions, therefore, can merely be regarded as some confidence-boosting measures targeting general investors. Because once investors' money is lost, it cannot be recouped under current mechanism. So, the authorities need to act timely in case of any irregularity in the stock market which is sensitive in nature and witnessed two disasters in last two decades.

The BSEC is set to celebrate its 25th founding anniversary on September 12. Although the regulatory authority has come of age in terms of gathering experience and expertise, the reality is it still needs to have more capacity building and do more to serve the all-important interest of the investors promptly identifying the people involved in wrongdoing and taking action against them. The recent evidence that the regulator could not rein in the unusual price rise of certain stocks only proves that mere suspension or serving notice won't do. The authorities should go tougher against any sort of irregularities and intensify efforts to stop unusual price rise of stocks on one hand and the people, on the other hand, need to make calculated investment staying cautiously away from putting their money in avertable stocks.

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