Dhaka, Bangladesh (BBN)- Bangladesh has announced a 21-point stock market stabilization package that primarily focuses on greater participation of banks and other financial institutions in stock market in the short-term.
Chairman of the Securities and Exchange Commission (SEC) Professor M Khairul Hossain unveiled the package at a press briefing at the office of the Commission in the capital Dhaka on Wednesday.
The SEC chairman said the measures included in the package were in short, medium and long-term in nature.
"The implementation of the short-term measures will start immediately, the medium- term ones in three months and the long-term ones in six months," the SEC chief noted.
The package includes a plan to formulate a 'special scheme' aimed at helping the small investors recoup their losses.
The SEC said in its action of plan that a 'special scheme' is going to be formed to protect the interest of small investors who really were affected by taking margin loans.
For the implementation of the scheme, a six-member committee will be formed with the ICB managing director as the convener. The other members of the committee are: a representative from Banks and Financial Institution Division of the MoF, an SEC representative, Managing Director or chief executive officer (CEO) of Central Depository Bangladesh Limited (CDBL) and the CEOs of two stock exchanges.
The committee will submit a full report on the issue within two months to the Banks and Financial Institution Division of the MoF.
The ten short-term measures include:
1) The loans provided by banks to their capital market subsidiaries, will not be taken into account while estimating their 'exposure to stock market';
2) The long-term equity investment made by a bank in any company will not be considered as 'capital market exposure';
3) The repatriation of commission money, which has to be paid to foreign brokerage firms in case of foreign investment, will be made speedier, subject to submission of relevant documents;
4) The 10 per cent tax imposed on the profits earned by investments by foreign institutional and non-resident Bangladeshis will be withdrawn;
5) The central bank will consider the banks' exposure limit to the stock market on a 'net-off' basis, instead of 'marking to market', basis;
6) The deadline for adjusting single-borrower exposure limit of banks has been extended by another two years, up to December 31, 2013;
7) The commercial banks have agreed to make more investment in the stock market in line with the advice given by Finance Minister AMA Muhith;
8) Insurance companies (life and non-life) have agreed to inject their surplus funds in the stock market;
9) The sponsor-directors of listed companies will have to own at least 30 per cent stakes of their respective companies; and
10) The merchant banks and other subsidiaries have so far collected 99 to 100 per cent of their funds from their parent companies, which are banks, non-banking financial institutions (NBFIs) and insurance companies.
From now on, the merchant banks and other subsidiary firms will be allowed to mobilize 49 per cent of their funds from sources beyond their parent companies.
The mid-term measures are:
1) The securities regulator will take initiatives to launch the 'Investment Advisory Service' to make the market an informed one. For this, brokerage firms will have to employ professional and expert investment managers;
2) The securities regulator will make available 'Equity Research Publication' to ensure access to information by investors, academicians and policy makers;
3) A corporate governance guideline will be formulated to ensure transparency and accountability of the listed companies; and
4) The securities regulator will immediately take measures to increase the capital of merchant banks and other subsidiary firms.
The long-term measures are:
1) Financial Reporting Act (FRA) will be formulated in a bid to increase the quality accounting and auditing disclosure by listed companies;
2) The present 'insider trading' rules will be upgraded and stricter.
3) The regulator will make the 'Small Investor Protection' law more time- befitting;
4) The proposed demutualisation of the two stock exchanges will be completed very soon to ensure their corporate governance;
5) Necessary measures will be taken to strengthen the mutual funds and make those more attractive to investors; and
6) The securities regulator will further strengthen the monitoring activities in the stock market by establishing improved surveillance system.
BBN/SSR/AD-24Nov11-12:11 pm (BST)