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Security, availability of shares needed to make DSE market lively

By S Y Bakht
The recent surge In demand for shares at the stock market can be maintained through security and expan sion of supply both in primary and secondary markets, said Amlnul Islam Khan. Chairman, Dhaka Stock Exchange (DSE).
The renewed local Interests coupled with the fresh entry and the keen interest shown by foreign investors, he said, the demand for shares in the stock market will continue to grow.
In an interview with The Daily Star, Khan suggested a series of measures to boost the supply of shares in the stock market.
'These include further privatisation of public sector industrial units, turning the utility service firms into holding companies and tapping the bond market.
However, he said that internal reforms tn the DSE and regulatory changes may be needed to deal with the rapidly expanding stock mar ket.
Terming the share market surge as a mini-boom, the DSE Chairman singled out the bold liberal!sation steps along with the fiscal measures taken by the government in line with resorting to the market economy Tor revitalisation of the stock market.
Specific steps taken to revive the stock market tn the country during the 1991-92 /ind the on going fiscal years, he noted, include allowing non-residents to Invest in shares and securities in the secondary market and also to invest on primary issue.
The total amount of imported capital and capital gains along with dividends can be taken back any time under the government’s liberalisation programme
The capital gain tax was abolished and the four per cent Jamuna multi-purpose bridge levy and the six per cent development surcharge was withdrawn, he pointed
Furthermore, he continued the fiscal measures already implemented In the financial sector also came as a boon to flourishing of the stock-mar-ket.
The govecnnjdnt seps to lower interest rates on national savings certificates and on savings and deposit accounts is encouraging investment in the stock-market, he pointed out.
To further augment the demand side, he said, it is
necessary that a portion of the government and public sector pension and provident funds, are diverted into shares and stocks.
Besides, he mentioned, the insurance companies and commercial banks should also come forward to invest in the stock market.
The commercial banks, currently, can' only subscribe to primary Issues, he noted, but should also be allowed to operate in the secondary mar ket.
Khan suggested that a portion of reserves of the commercial banks with the Bangladesh Bank should be covered by their investment in shares and securities.
To boost the supply side, particularly In response to the increasing foreign interest, he said, the government needs to privatise all public sector Industries, primarily the profitmaking ones, through the DSE, in phases.
"To attract big foreign investors the utility sectors like power, energy and telecommunications should be given corporate status so that their shares can be traded publicly." he observed.
To increase the flow of securities in the stock-market, he said, bonds and mutual funds should be allowed to be floated both the private organisations and public sector corporations like the Dhaka City Corporation, Bangladesh Bi -man. Bangladesh Chemical Industries Corporation, Power Development Board and T&T.
"The bond market is totally untapped in the country, whereas in all neighbouring countries It is quite well developed,'' he noted.
Bonds, carrying fixed rate of interests, can attract large number of savers and provide better yields than savings deposits, he said.
The DSE Chairman further suggested that sufficient funds along with necessary management and technical expertise should be mobilised to rehabilitate the reportedly large number of sick industries tn the country.
"What Is necessary is saving the industries by giving them the required treatment
in the long run," he said.
He said the government Is contemplating formation of a securities and companies commission to regulate and develop the capital market In the country.
A committee headed by the Additional . Secretary of the Ministry of Finance has already been formed, of which the DSE Chairman is a member.
The commission is likely to be inoperation within this year, he noted, which will be entrusted with all regulatory functions of the capital market and registration of joint stock companies.
Thus, the offices of the Controller of capital issues and the Registrar of Joint Stock Companies are likely to be abolished, he said. The DSE Chairman noted that the Company Act of 1913 needs to be updated. The public limited companies portion of the act is likely to be amended once the securities and companies commission is formed, he added.
Khan said that steps arc being initiated to'update the internal rules and regulations of the stock exchange concerning trading, listing and settlement of securities tn line with the market needs and also for the protection of the investors' interests.
Currently the DSE rules provide for settlement of transactions within seven working days from the date of signing of the contract, whereas, the FIBV — the Paris-based international body of stock exchanges— recommends only three days for closing transactions.
"We are trying to bring necessary amendments to change the closing date on transactions." the DSE.Chairman said.
system of floor trading similar to ah auction.
The options are either going for a fully automated or at least a semi-automated system of floor trading, he said.
Improvement of rules will also be needed to encourage
development of institutional investors, he said, adding that some other bottlenecks also needs to be removed.
Initiatives have already been taken to develop an information and resource centre and various donor agencies have shown Interest to help mordernisc the system of trading keeping In pace with developments in other neighbouring countries.
A project has been undertaken by the Asia Foundation with funding from USAID to improve operational facilities and develop infrastructure of DSE.
To broaden the base of the DSE management, the Chairman said, the existing number of council members have been increased from nine to 12.
Of which, nine of the members will be elected from among the 195 members of DSE and a government nominated member each from the Ministry of Finance or financial Institutions, one from -the Institute of Chartered Accountants of Bangladesh and a representative from a chamber.
Are the interest of the investors well protected ? "ft fs well protected for the time being as the DSE is yet to receive any sort rf complaints about irregularities, but you cannot totally rule out the possibility." he said.
Khan added that a more stringent protection clause and other precautionary mca sufes may be incorporated in the proposed securities and companies commission.
However, even if any complaints are received, the pov ernment can look Into the matter in addition to the actions taken by the DSE council.
The council being I hr supreme authority, we can suspend any member and lake disciplinary action agafnsi him." he said.
Asked if a Bombay like stock-market scam ran take place here, he said "you cane, .i rule out the possibility bul tl« market is very small here compared to the one In India
What about insider trading ?" Insider trading Is a big problem In most countries, but It is not factor here now." the DSE Chairman said, oddinp "we are quite alert and Watch tel-
Khan noted that the prevailing law and order situation was putting a damper to the investment climate inspltc of the government’s effort to allmr-t foreign Investors through fiscal and other incentives.