Share management and securities exchange laws of Bangladesh: Determining efficacy and fallouts

Abstract

Securities market (also popularly known as financial market or capital market), one of the best alternatives for investment, has been one of the central areas of concern for past few decades in our country. Though the history of capital market (commonly known as stock/share market) predates the history of independent Bangladesh, it is still struggling to establish and prove itself as an efficient market for the investors. To address the cause behind the lack of acceptance of the securities market in the country (with major focus on share market), the perspectives and consequences of two major share market scams, one experienced in 1996 and other in 2010-2011 are examined in this thesis. Both the scams subjected the existing legal regime to serious doubts. Through the scams, general investors suffered unprecedented loss and the market manipulators stole a large amount of money. The investors and the regulators were equally at a loss at the sudden turn of events. All these factors have been the motivations of this thesis which is not only focused on analyzing and examining the existing legal regime of the securities market but also equally concerned about identifying the controlling perspective behind it. After the 1996 stock market crash, the securities market experienced tremendous reformations, but all those attempts fell short during 2010-2011 stock market crash. After the gigantic crash in 2010-2011, the market went through frequent and massive reformations. Still the market has to gain public trust and confidence for healthy investment. Shortcomings in the legal structure and inefficiencies in the managerial authorities have been pointed as major reasons behind poor condition in our securities market. To that effect, this thesis addresses the efficacy and fallout of the legal structure (including governing laws and institutions) of securities market and pinpoints the areas which require reformations and further implementations for the enhancement of market efficiency, steady improvement, establishment of public faith and securing more investment. In securities market, several kinds of securities are sold and purchased. Through the trading of securities, the ownership of the securities is mainly transferred. To give effect to this process of transferring fund and ownership of fund, several managerial institutions and laws have come into force which makes this area a complex one. For example, the Government of Bangladesh through its relevant Ministries is involved to the governance for the stock market along with other regulatory authorities. Amongst those, the Bangladesh Securities and Exchange Commission (BSEC) plays the central role for the regulation and governance in stock market. At the same time, the Bangladesh Bank, the Investment Corporation of Bangladesh (ICB), the Micro-credit Regulatory Authority (MRA), the Insurance Development & Regulatory Authority (IDRA) and the Central Depository Bangladesh Limited (CDBL) also play significant roles. In addition, the market intermediaries, such as, stock exchanges, stock brokers, sub-brokers, stock dealers, jobber, authorized dealer, securities houses, depository houses, merchant banks, portfolio managers, share transfer agents, bankers to an issue, financial institutions, insurance companies, trustees of trust deeds, registrars to an issues, underwriters, credit rating companies and other intermediaries play critically important roles in the securities market. Most notably, there are certain other players who play negative roles in the market. They are often known, and often unknown, and they are behind the market manipulation, better known as the ‘ghosts in the stock market’. These ghosts mostly remain beyond control, and therefore, the remediation to the unjust loss sufferer becomes impractical. Along with the aforesaid market regulators and players, there are considerable bundles of laws and regulations that guide the governance and management of the securities market. The laws are generally regarded as sub-standard and inadequate to ensure fair, effective, transparent and healthy governance in the market while the managerial institutions are seen to be corrupted and manipulated in many ways. Even the Judiciary is inactive in this regard. In fact, challenges are multifarious, countless and mostly unaddressed. However, despite numerous challenges, obstacles and debacles in our stock market, the subsistence of stock market remains vital in our national economy. It not only helps the corporations to raise equity finance so as to meet the need of finance with fewer burdens and risks as opposed to debt finance, but also ensures public participation in industrialization. Having understood and admitted the significance of securities market in our national economy, it is highly felt that this sector should get more preferences and concentration for the betterment of the overall economy of our country. The obstacles, challenges, legal pitfalls and managerial failures can be defeated by the good attempts jointly undertaken by the regulators, market players and investors for the promotion and development of the securities market of our country.