Stock market reform going right, bit slow

When the interim government took power in August 2024, one of its earliest pledges was to fix a stock market long plagued by manipulation, inefficiency and lax oversight. A year on, the Bangladesh Securities and Exchange Commission (BSEC) has embarked on what is arguably the most ambitious clean-up in its 30-year history. The results are mixed: enforcement has been unusually forceful, but many structural reforms remain on paper.

One clear change is the end of the once-routine practice of the BSEC nudging brokers to buy shares to prop up the benchmark index. Such interventions, which undermined market independence and violated rules, have ceased in the past year.

“For once, they’re not chasing the index, they’re chasing reform,” said Saiful Islam, president of the DSE Brokers Association.

Former BSEC chairman Faruq Ahmad Siddiqi detected “a qualitative shift in mindset” and “no bad intentions as we have seen previously”.

HEAVY FINES FOR MANIPULATORS

Over the past year, the new commission, reconstituted under Chairman Khondoker Rashed Maqsood following the fall of the Awami League government last August, has revived long-pending cases and acted with unprecedented vigour. It imposed record fines exceeding Tk 1,100 crore for stock manipulation, the highest since the commission’s founding in 1993.

In a major policy shift, fines now cover up to 90 percent of illicit gains, compared with around 20 percent before.

Among the most high-profile cases was a Tk 428 crore penalty against five firms and four individuals accused of manipulating shares in Beximco Ltd, owned by Salman F Rahman, former private industry and investment adviser to the prime minister.

In October 2024, the commission fined five firms and four individuals, including Mosfequr Rahman, Momtazur Rahman, and their associates, over widespread manipulation in Beximco stock trading between July 28, 2021, and September 6, 2021, as well as January 2, 2022, and March 10, 2022.

In a separate development, Salman F Rahman, his son Ahmed Shayan Fazlur Rahman, and the previous BSEC chairman Prof Shibli Rubayat-Ul-Islam were recently declared unwanted for life in the stock market for misleading investors with a deceptively named bond.

The commission said they misled investors by branding a bond “IFIC Aamar Bond” to suggest it was issued by IFIC Bank when the issuer was Sreepur Township Ltd. The Daily Star exposed the irregularities in a report titled “Aamar Bond not IFIC’s”, published on November 23, 2023.

In May, the BSEC informed the finance ministry of alleged manipulation by Abul Khayer and associates. In June, the Anti-Corruption Commission filed fraud and embezzlement charges against Khayer, his wife, and 13 others, including cricketer Shakib Al Hasan. They were fined over Tk 190 crore.

Siddiqi welcomed the crackdown but said the regulator initially “rushed to take punitive measures”, spooking markets, before adopting a more measured approach focused on returning funds without panic.

He also argued that the main culprits often remained untouched. “The real manipulators operate under others’ names,” he said, making collection of fines difficult.

“It was possible to find who the main culprits were, but the BSEC did not find them,” he said.

The commission has also frozen approximately 600 beneficiary owner (BO) accounts since the change in government last August.

As part of finding what actually happened during the previous government’s regime, the BSEC mulled investigations last September. The probe committee submitted all of their reports regarding 13 issues by April of this year. Enforcement is yet to see completion.

Yawer Sayeed, a member of the enquiry committee, said, “As these were huge tasks and detailed reports, it took around six months to complete all the reports.”

“We have also provided some policy recommendations that are research-based so that such activities can be prevented in the future.”

Meanwhile, Abul Kalam, spokesperson of the regulator, said, “As the BSEC needs to first assess the reports and hold hearings, it takes time to take enforcement decisions.”

One-third of the cases are at the final stage and are waiting for enforcement decisions in a commission meeting, he said.

BROAD STRUCTURAL REFORMS

Much of the policy work stemmed from the five-member task force appointed after the new government took office. Its blueprint, submitted in June, covers IPO rules, margin trading, mutual fund oversight and digitisation. A committee member said the process took time to ensure stakeholder input.

“We consulted widely so that all parties feel their views are reflected,” said Al-Amin, a member of the task force committee and a professor at Dhaka University.

But others argue the proposals were neither groundbreaking nor swift.

“The task force committee should not have taken such a long time. They have recommended things which were almost known to people, so these could have been done within one month,” said Siddiqi.

“These recommendations were known. They could have been finalised in seven days. What matters now is implementation. As there is no revolutionary recommendation, even within seven days, these recommendations can be made,” he added.

One tangible change is the overhaul of IPO approvals. The process is being digitised to reduce lobbying and shorten timelines, with stock exchanges gaining initial approval powers. The BSEC will retain oversight.

“We expect full implementation within this year,” said Dhaka Stock Exchange (DSE) Chairman Mominul Islam.

At present, the BSEC is running a pilot project to make the IPO application process fully digital so issue managers will not need to come to the BSEC personally for IPO applications.

It also makes it compulsory for listed firms to differentiate dividends before holding AGMs to avoid delays in dividend payments as part of the reform.

Other measures have already taken effect via the 2025-26 budget. BO account maintenance fees have been cut from Tk 450 to Tk 150, turnover tax for brokers reduced to 0.03 percent from the existing 0.05 percent, and the corporate tax gap between listed and unlisted firms widened from 5 percentage points to 7.5 percentage points to encourage listings.

Not all are convinced by the BSEC’s approach. Saiful Islam of the brokers’ association complained of limited engagement.

“You can’t just post proposals online and expect buy-in,” he said. “There needs to be structured dialogue. Once rules are passed, they’re hard to reverse.”

Task force member Al-Amin, however, said the association ignored repeated invitations and sent a representative only at the last minute. “That’s on them.”

PROGRESS THERE, BUT LONG WAY AHEAD

After the fall of the previous government, the DSEX, the benchmark index of the Dhaka bourse, leapt 589 points in three days to above 6,000. It then slid steadily, dropping below 4,615 by May, before recovering to over 5,350 in recent weeks.

“The stock market was massively undervalued, so it is a natural rebound of the stock,” said Shahidul Islam, CFA, chief executive officer of VIPB Asset Management.

Since January 2024, the index dropped around 12 percent before the rebound. As a result, many stocks were attracting investors.

For the rise of the index, macroeconomic development was a reason. “A solid development was seen in rising foreign exchange reserves, and pressure on the exchange rate dropped. Inflation has dropped and other economic indicators are also showing signs of recovery.”

Most importantly, Islam noted that the interest rate of treasury bonds is in a falling trend, and it has a direct inverse relationship with the stock market index.

Governance improvements have also helped draw in long-term investors.

Yet structural weaknesses remain. No IPOs have been launched in the past year. BO account numbers fell by 20,000 (around 1 percent), though accounts with balances above Tk 100,000 increased, according to Central Depository Bangladesh data.

The past year has shown that the BSEC can act decisively against misconduct and outline credible reforms. Whether it can translate those plans into a durable revival remains uncertain.

The DSE chairman is optimistic.

“We’ve started a culture of transparency. Investors are slowly returning. We’re not there yet, but we’re headed in the right direction.”