Directors can’t book profit in six months of buying shares

Beneficiaries, including directors and officials, of a company will have to deposit back into the company their profits earned from the sale of their shares within six months of the purchase, according to a proposed law formulated to prevent stock manipulation.

And in case of a failure to deposit the profits, the Bangladesh Securities and Exchange Commission (BSEC) will realise the money.

The Securities and Exchange Ordinance of 1969 and the Act of 1993 on the same subject are being replaced by the new law with such a provision.

The Financial Institutions Division has published the draft of the proposed law, titled "Bangladesh Securities and Exchange Commission Act 2022." Public opinion has been sought on the draft.

According to the draft, individuals or organisations who are considered beneficiaries (directors, officers, or employees) of the listed companies or who have at least 10% ownership will submit a report if they make profits from buying or selling shares of the respective companies within the prescribed period.

However, this provision will not be applicable if someone makes a profit by buying and selling shares in good faith in return for repayment of debt.

In the draft law, the BSEC will be able to conduct intelligence activities to get advance information on share manipulation and insider trading. In some cases, suspects can also be monitored.

The commission will also be able to carry out intelligence activities to stop and uncover information related to market fraud, market manipulation, insider trading and such other activities.

The proposed law contains a provision to punish a person involved in manipulation or fraudulent activities in the stock market with a maximum imprisonment of ten years, a minimum fine of Tk10 lakh, or both.

It also proposes the confiscation of assets acquired through manipulation or fraud and fines of at least twice the amount of the resulting loss.

Even after buying shares in good faith on the basis of information provided by a person or organisation, if the information is false and an investor suffers as a result, he can file a lawsuit against the person or organisation concerned for compensation within three years of the incident.

In the interest of investors, the commission can reconstitute the board of directors of a company without giving it an opportunity to be heard.

BSEC Spokesperson and Executive Director Rezaul Karim told The Business Standard that the law is being modernised with the priority of protecting the interests of investors.

"Many things were not clear in the previous law. Now they are being clarified," he added.

It is proposed in the draft law that no company or issuer registered in Bangladesh can issue any capital or securities abroad without the permission of the commission.

Again, whether registered in Bangladesh or not, no capital or securities can be issued in this country without the permission of the commission.

The existing law stipulates that the first task of the regulatory body is to ascertain the validity of issuing shares or other securities. The proposed law brings forward the preservation of investors' interest in the issued shares. Restrictions have been imposed on not publishing the IPO prospectus without the permission of the Commission.

After the listing of a company, if the commission or the exchange finds any deficiency in the company's IPO application, the commission can withdraw the listing.

If a company applies for delisting, the stock exchange can ignore the application to protect investors.

It is said to give the commission the power to control the merger, amalgamation, or restructuring of listed companies with unlisted companies.

At the same time, it has been proposed to give the commission the power to assess and control the activities of financial auditors or asset appraisers to carry out investigations and run cases when the crimes described in the Prevention of Money Laundering Act are committed in the stock market.

When a person or organisation goes bankrupt, its assets cannot be used to pay off debts to creditors. The draft law prohibits the use of funds held by central counterparties and depositories, customer funds held by stockbrokers, stock-dealers, portfolio managers, and security custodians, assets held in special purpose vehicles, assets held in investor protection funds, and liabilities of Islamic securities or debt securities, as well as any reserve fund set aside for this purpose, to pay off debt.