Managing directors (MD) and chief executive officers (CEO) of merchant banks will be able to trade stocks and various securities like the MDs and CEOs at all other market intermediaries.
The Bangladesh Securities and Exchange Commission (BSEC) in its 707th commission meeting on Thursday approved the proposal to amend the Securities and Exchange Commission (Merchant Banker and Portfolio Manager) Rules, 1996.
According to the amendment, MDs and CEOs of merchant banks can now buy and sell any securities other than securities issued by entities whom a merchant bank served as an issue manager.
Merchant bankers have welcomed the amendment, but they are looking for clarification on the time merchant bank MDs and CEOs will have to wait for trading the securities of the served entity after the completion of an issue management service.
Md Saifur Rahman, an executive director and the spokesperson of the BSEC, told The Business Standard that there has to be a rational timeframe for this, and which will have to be specifically published in the gazette of the rule's amendment.
Bangladesh Merchant Bankers Association (BMBA) had been requesting the regulator to allow their MDs and CEOs to trade in securities since the restriction was imposed in 2011.
Stockbrokers, stock dealers, asset management companies, alternative investment fund managers – no market intermediary is facing such restrictions.
As the income tax law of the country allows merchant bank chiefs a tax rebate against investment in listed securities and in government-issued savings certificates, they have been eager to invest in the stock market.
The initial Securities and Exchange Commission (Merchant Banker and Portfolio Manager) Rules, 1996 did not restrict merchant bank bosses to trade in the securities market.
But after the 2010 crash, there was a perception that merchant bank heads are too influential in the securities market in terms of the fund size they handle and their access to information.
In December 2011, the BSEC made an amendment to the said rule that added rule no 37 and 38, which outlined the rules of the appointments of MD and CEO at merchant banks.
Based on market reform prescriptions, the regulator had prohibited them from owning or trading in securities issued by any stock exchange, any market intermediary or any issuer company.
No shareholder, entrepreneur or shareholder director of a merchant bank will be allowed to work as the MD or CEO at any merchant bank, the BSEC said in the 2011 restriction.
Dragged down by margin loans, most merchant banks have turned into risky companies, and are not that influential in the market now.
Portfolio management service to the clients is not that popular in the downward market, compared to the scene before the crash.
Bangladesh now has 62 merchant banks operating under license from the BSEC. But less than one-fourth of them are sufficiently active in full-fledged business activities which include corporate advisory, issue management services, and portfolio management services.