Law does not stand in isolation. Law matters in development, so does securities regulation. ‘Regulatory Governance’ in the securities market can have positive implications on the general economic conditions of the country. General economic conditions, in turn, affect the investment climate of an economy. Therefore, regulatory governance in the securities market does matter in creating a healthy investment climate in Bangladesh.
2017 has been astonishing for the country’s securities market investors, as price index of Dhaka Stock Exchange (DSE) saw a sharp rise by 23.98% to 6244 points.In 2017, the DSE’s average turnover value stood at Tk. 874.83 crore, the highest since the stock market witnessed a crash in 2011. In 2016, the average daily turnover was Tk. 494.43crore. In 2017, the market capitalization increased by 23.93% to Tk. 422,894 crore, which was Tk. 341,244 crore in 2016. However, the investors still irk with the thought as to how much are they protected against the securities market crashes in near future. Can the Securities and Exchange Commission (SEC) of Bangladesh effectively protect the investors?
In the securities market, the regulatory and enforcement authorities essentially include SEC – the central regulator, the stock exchanges and the judiciary. The Anglo-American disclosure regulatory regime that we follow is less demanding of the central regulator. This regime only requires that the central regulator (i.e. SEC) undertakes a relatively low level of surveillance (through the press or receipt of complaints) and have a staff competent enough to issue stop orders if a prospectus is found to be defective. Other than central regulators, under Anglo-American disclosure regime securities exchanges are expected to play a vital role in enforcing disclosure rules. Finally, the Anglo-American disclosure regime needs a relatively competent judiciary or other dispute resolution system to deal with securities market disputes.
In Bangladesh for long it was argued that neither the SEC, nor the stock exchanges had the required ‘regulatory capacity’ to regulate the securities market and as such, the unregulated market had valid reasons to frequently crash. Corrupt issuers in Bangladesh are found to easily raise capital from the market due to lack of effective regulation or enforcement of prospectus liabilities.
SEC needs more qualified people who would possess necessary knowledge and experience in securities market regulation. It is true that over the past years various training programs have been organized to enhance the knowledge and skills of SEC staffs so that they could perform their supervisory functions more effectively. It is equally beneficial for the regulatory staffs to go for overseas training programs and workshops/seminars so that they could acquire an international exposure of securities market regulation. SEC should enhance more commitment of its staff. Recruiting and training of promising and committed young professionals should be encouraged at SEC.
Governance in the regulatory bodies is a pre-condition to establish governance in those to be regulated. Therefore, it is essential that SEC, as a regulator, practices its internal good governance to ensure good governance in the corporate sector under its regulatory control. However, in past it has been alleged that SEC had performed poorly in ensuring its internal governance. There has been a series of media reports putting the public image of SEC and that of its officials as regulator under criticism. For example, according to media reports, a high official at SEC was awarded 5 undue increments in a single year; an officer of SEC got his appointment by submitting forged educational certificates; an official who earlier retired from a state owned enterprise under golden handshake was appointed at SEC violating rules and then allegedly got involved in a series of corrupt practices; legal advisor and a foreign consultant to SEC was paid large amount of fees without valid grounds. Whether these media reports are facts-based or not but one thing is clear that such media reports erode common people’s trust on SEC as an efficient and reliable regulatory body of the capital market.
Securities market regulations cannot be successfully implemented unless there is a proper coordination between SEC and various other regulatory bodies, such as, the stock exchanges in performing their self-regulatory function and the merchant banks in delivering their services effectively. However, the regulatory reforms in capital market of Bangladesh have so far been heavily focused on SEC, neglecting other key capital market participants. A recent study reveals that ineffective enforcement of existing disclosure laws, by both the SEC and the stock exchanges, are largely responsible for the non-participation of institutional investors in the securities market of Bangladesh.
In Bangladesh, the judiciary at times suffers from lack of public confidence. The main reason for this lack of confidence is believed to be an inordinate delay in the disposal of cases. As a result, most of the violations of securities laws go without judicial remedy and such unfettered violations result in a severe lack of investor confidence in the market for IPOs (Initial Public Offerings). There has been unexpected delay in Share Scam Cases Disposal. It is understood that the overall justice delivery system in Bangladesh suffers from excessive delay which the Government is trying to overcome. However, the wrongdoers need to be punished within a reasonable time for investors to restore their confidence in securities market regulations.
Other than ‘law, rules and regulations’, a successful regime of investor protection requires a supportive regulatory regime for a number of relevant market or regulatory institutions. SEC alone cannot guarantee the same. The securities market regulatory perspective in Bangladesh must now change to relieve the SEC from ‘playing Horatius at the bridge’. There is no doubt that Bangladesh needs statutory provisions like Regulation Fair Disclosure, 2000 (USA) and Sarbanes-Oxley Act, 2002 (USA). Thus, to ensure an effective investor protection regime in the securities market, it is suggested that SEC must start meaningfully disciplining corporations, various professional bodies (such as, accountants and lawyers) and other market players.
Barrister Tureen Afroz is an Advocate of the Supreme Court of Bangladesh and Professor of Law at the East West University.