BSEC pushes bourses to achieve demutualisation goals

The securities regulator has pushed both the country's stock exchanges to expedite the complete implementation of demutualisation schemes, aimed at separating the ownership and management of the bourses.

The schemes were taken in 2013 with an objective to bring professionalism to the Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE).

In a letter to the managing directors of the DSE and CSE on Sunday, the BSEC sought reports from the bourses on how much of the demutualisation objectives they accomplished and what were their initiatives to achieve the objectives.

Through the demutualisation in the mid-2010s, the bourses have turned into for-profit stock exchange companies from an association of stockbrokers.

Both the bourses will frame and submit separate draft regulations to the commission by 10 January regarding their listing process as stock exchange companies, BSEC said.

Exchange companies' listing is a part of the demutualisation goals.

The bourses will appoint a compliance auditor to conduct a special audit and review on the function and compliance of ongoing requirements, code of conducts, code of ethics and other issues as per the provision of their Board and Administration Regulations and the Demutualisation Act, the regulator said.

Even after the separation of the ownership and management, several events appeared to make observers believe that the bourses' management are yet to enjoy the needed independence.

Undue interference in the processes of hiring and firing top executives, routine activities of the management have been the common areas where the achievement of the demutualisation objectives have been questioned.

"The compliance auditor will also look into the accomplishment of the demutualisation objectives, and the initiatives taken within exchanges," the BSEC said in its letter to the DSE and CSE.

The appointment of the auditor and its terms of reference will be subject to prior approval of the commission and the auditor's report to be submitted within 30 working days of the BSEC letter issuance date, it added.

The DSE will submit its Service Regulations without delay, the BSEC said, responding to repeated complaints regarding how the bourse handles its human resources.

The CSE has been instructed to set a timeline to complete agreement with strategic investors as it is a vital requirement for true demutualisation.

The DSE secured its strategic partnership with a consortium of the Shenzhen Stock Exchange and Shanghai Stock Exchange – two Chinese firms – in 2018.

On the other hand, with a meagre market share, the port-city bourse CSE is yet to ensure its strategic partnership which would offer it capital and exchange development support. 

Both the bourses must take initiatives to introduce yield-based trading platforms for vibrant trading of debt securities including the government securities within the deadline, said the regulator, pushing the DSE and CSE to host modern secondary bond trading.

The material objectives of the demutualisation schemes such as achieving a sustainable average daily turnover of Tk2,500 crore, securing a strong domestic and foreign institutional investment base – at least three-fourths of the total investment in the market are still unachieved.

The other unattained goals of the schemes are attracting foreign investments for at least 30% foreign holding in the listed scrips on average, building a deep and liquid bond market, introducing modern capital market products such as exchange-traded funds, futures and derivatives.