BSEC pushes for mutual fund conversion despite legal ambiguity

The Bangladesh Securities and Exchange Commission (BSEC) has issued a fresh clarification today (11 June) regarding its mandatory mutual fund conversion directive, exempting only the specific petitioners currently involved in a High Court legal battle. 

In a move that has further intensified the standoff between the regulator and industry stakeholders, the BSEC instructed trustees to proceed with the conversion or liquidation of closed-end funds, despite a broader judicial status quo.

In a letter issued today, the commission directed trustees to follow its 9 June order – conversion or liquidation for closed-end mutual fund – except in the case of the petitioners involved in writ petition, which remains pending before the High Court. 

BSEC spokesperson Abul Kalam told TBS that the regulator's directive remains effective for the rest of the market. He argued that since only a specific group of unit holders challenged the 7 May order, the conversion activity would only be suspended for the related mutual fund, while others remain unaffected by the court's stay.

However, this partial exemption has done little to ease the anxiety of fund trustees. Industry insiders warned that the BSEC's interpretation might be misleading and could lead to direct contempt of court. 

A senior trustee official, speaking on condition of anonymity, pointed out a critical ambiguity: the writ petition does not explicitly name a single closed-end fund. He questioned how trustees could identify the specific "respondents" meant to be exempted, adding that the commission's stance appears to conflict with the High Court's two-month status quo order issued on 24 May.

The sector remains in a state of paralysis as the original deadline for initiating the conversion process expires. Currently, 22 of the 36 listed closed-end funds are subject to the BSEC's mandate because they trade at a discount of 25% or more to their net asset value.