The enquiry confmittee report on the share market, which unveiled involvement of a number of Dhaka Stock Exchange members and some listed companies in market manipulation, also said that if the Securities and Exchange Commission (SEC) had taken stern action against the manipulators in time, the share market crash could have been less costly.

The committee made a number of recommendations for ensuring transparency and stability of the country's capital market.

Led by Vice Chancellor of the Jahangirnagar University Prof Amirui Islam, the committee in its report identified many flaws existing in the management of the Dhaka Stock Exchange (DSE). the delivery-versus payment (DVP) system and the listing and membership system in the DSE. and recommended

several corrective measures.

If focused on the DVP system as one of the main tool of share market manipulation.

Criticising the SEC in the executive summary, the reports said, "the SEC. instead of taking direct action against the wrongdoers, such as suspension

of trading, cancelling license of brokers, etc. took measures of corrective nature which failed, that too belatedly to produce any positive results."

It further said, "the SEC should have been more aggressive in taking punitive actions against the manipulators. Strong action could stop the debacles at the earlier stage and at a lesser cost to the investors."

The SEC should have adequate number of professional staff, the report said. It should develop strong surveillance and monitoring mechanism and the officers and staff should be imparted sufficient training. 'The SEC should be a fully autonomous and self-regulatory body." it added.

The enquiry committee report said that there must be complete separation of the DSE management and recommended that the routine day-to-day af-fairs of the DSE should be handled by a Chief Executive Officer and the tenure of the Member or Councillors in the DSE Council should not be for more than one year. It suggested that for the one-year period they may also be barred from engaging in floor trading.

The committee also recommended that there should be an electronic display board in the D$E to show instantly the changes In the prices of listed securities. The trading system should be fully computerised.

Tlie DSE and Chittagong Stock Exchange (CSE) should have separate cells for constant mbnitoring of the DVP traders and for taking punitive actions in case of default, it said.

In case of local DVPs, only institutional investors should be allowed to participate and all transactions should be settled through banks, so that the scope for fictitious traders are eliminated.

The listing rules of the stock exchanges should be revised because these do not conform to international standards.

The report further recom- • mended that the number of membership of the DSE should be raised Immediately to an ac-

ceptable level.

The stock dealers should not be allowed to act as stock brokers, it observed. This is because there is often conflict of interest between stock-dealing and stock-brokering. "In most cases, a member as a stockdealer puts his own interest above the interest of clients, when acting as a broker." the report said.

The DSE and the CSE do not have effective and strong surveillance mechanism, the reports pointed out. "In case of unusual movement in the prices of securities, as well as of volume of securities, it is necessary to ascertain the causes thereof to detect if there is any manipulation or any other kind of fraudulent activity."

The four-member enquiry committee also found that sponsors of a number of listed companies have sold significant position of their holdings during the October-November '96 period. "Therefore, the sponsors of listed companies should be prohibited from unloading their shares for at least two years from listing of the concerned security in the stock exchange." the report recommended.

The SEC should discourage

issue of shares at a premium and. if necessary, it might encourage issuance of bonus shares to Die existing share- . holders to bring them at par.

The managers to an IPO should be required to give certification as to the genuineness of the project or position of the project. Greeniield companies should not he allowed to issue shares at a premium, it suggested.

The report further recommended that steps should be taken to augment supply of securities by raising the corporate tax rebates for listed companies. privatisation of state-owned enterprises (SOEs). divestment of government share holding in the SOEs and in public utilities.

It recommended relaxation on the restriction on investment in listed stocks by provident funds, insurance companies and co-operative societies in order to increase the demand for securities.

The committee strongly felt that a National Stock Exchange (NSE) should be established with institutional membership and that the government should immediately publish an outline of NSE- for national debate.