BSEC chairman explains why stocks are falling

The securities regulator has nothing to do with the ups and downs at the stock market, said Professor M Khairul Hossain, chairman of the Bangladesh Securities and Exchange Commission (BSEC). 

Rather, it is determined by collective actions of investors, based on their perspective in given context, he stated, while speaking at the inauguration of the Capital Market Journalist Forum (CMJF) office in Dhaka on Thursday. 

The CMJF website was also inaugurated during the event.   

"After the 2010 market crash, we had addressed the issues in the capital market and came up with enormous regulatory reforms that prepared the market for its expected journey to the next stages. 

"The market is down again in recent months and it is neither determined by the BSEC, nor is this our jurisdiction," added Dr Khairul, also blaming various non-capital market factors for pushing investors towards panic sell-offs. 

His comments are believed to be a response to the ongoing criticism against the regulator for its alleged failure to protect the rights of capital market investors.                                                                              

After an annual fall of over 13 percent in 2018, the stock market of Bangladesh is headed for an even bigger slump this year. Until December 19, the broad-based index of the Dhaka Stock Exchange (DSE) fell by 17.2 percent this year. 

Except some low-cap stocks, almost all the scrips at both the stock exchanges lost prices very sharply, leaving investors in dire straits. 

The intermediary industries like brokerage, merchant banking, and asset management service providers are also suffering a huge shortfall in revenues due to reduced activities. 

Stock market is "sensitive" 

The BSEC chairman said the stock market is always "sensitive," adding that whenever any regulators have come up with anything harmful for stocks, it ignited a sell-off. 

"When the National Board of Revenue [NBR] chief told in a meeting that all the investment account holders must have a tax identification number, that pushed the market down," he stated as an example.  

The perspective of investors on any given context and ongoing events are also responsible for secondary market behaviour, Khairul further said.

Citing another example, he said that top contributors to the recent index fall include Grameenphone, Square Pharmaceuticals, British American Tobacco Bangladesh, Olympic Industries and United Power, along with some other good fundamental companies. 

Mainly, foreign investors are adamantly selling their stakes in those companies as they are fearing a possible currency devaluation in Bangladesh that might shrink their US dollar-based balance sheets.   

Grameenphone, on top of those, has its issues with the telecommunication regulator and the revenue board. 

"When a large foreign investment is withdrawn, it leaves a spillover effect on the market as many local investors prefer to follow through. The top policy making officials in Bangladesh have rejected any possibility of currency devaluation, but the sell-off by foreign investors continues." 

He highlighted the need for a prudent local institutional investor base to act for better market making.  

The IPO debate

The securities commission is being widely criticised for the quality of initial public offerings (IPO) approved by them. 

The BSEC chairman, however, strongly denied any wrongdoing during the discussion with capital market reporters. 

"There is a set system for stock market listing and we have been, and still are, open to any expert proposal for necessary changes in rules and regulations." 

BSEC approves IPOs based on due diligence by issue managers and prospectuses audited by professional accountants. 

"There may be debuts higher or lower than a company deserves, but the reality is, investors rush to subscribe into the public offerings. BSEC has no jurisdiction to stop or inspire them," Khairul added.

Some companies later improve in business, such as JMI Syringes and Medical Devices that helped the company's Tk10 shares secure a secondary market price above Tk400 now. 

On the other hand, some companies, led by bad people, after issuing shares at Tk10 are now trading below Tk3-4, he said. 

All over the world, after IPOs, lots of companies' share prices slump but no one blames the regulator. 

The BSEC is ready to accept the allegation of failure "only if you can prove that the regulator has deviated from this and that part of securities law," said Khairul Hossain.