Delay in BSEC chair’s reappointment 'dampens market sentiment'

Infographic: TBS

The finance ministry recommended Shibli Rubayat-Ul-Islam for a second term as chairman of the Bangladesh Securities and Exchange Commission (BSEC) to the Prime Minister's Office (PMO) on 31 March. The PMO approved the recommendation on 4 April. However, as of now, the finance ministry has not published the circular regarding Shibli's reappointment.

Market insiders said it has been 12 working days since the PMO's approval, yet the circular for the chairman's reappointment has not been issued. This delay has created uncertainty among investors regarding the chairman's second term. Many speculate that Shibli may not be granted another term, and this uncertainty is eroding investor confidence.

Shibli Rubayat-Ul-Islam was appointed as the chairman of the BSEC on 17 May 2020. His tenure is set to expire on 16 May this year, leaving only 13 working days until his term ends.

Three other commissioners – Shaikh Shamsuddin Ahmed, Mizanur Rahman, and Abdul Halim –will conclude their tenure on 19 May and 1 June this year.

A leader of the DSE Brokers Association of Bangladesh (DBA) said the commission's term is set to expire in the middle of next month, but there has been no final decision yet on whether the current commission will remain for a second term or if there will be a new commission.

According to market insiders, a letter signed by the Prime Minister regarding Shibli's appointment for a second term was circulated on social media, causing upset and anger among many.

Meanwhile, investors are grappling with the continuous decline in the stock market due to the high interest rates, economic uncertainty stemming from the Middle East escalation. Furthermore, the delayed issuance of the appointment circular for Shibli's second term is also contributing to the current market downturn, worsening investor uncertainty, they added.

Since the removal of the floor price on 19 January, the DSEX has lost 818 points, resulting in around Tk1 lakh crore being wiped out of the country's premier bourse in value. Currently, the market capitalisation stands at Tk6.99 lakh crore.

According to the Central Depository Bangladesh Limited, the number of beneficiary owner (BO) accounts with zero shares rose over 60,000 in the last three months. Due to massive sell-offs, the number of BO accounts with a share balance fell over 56,000.

The BSEC held a meeting last week with top brokerage firms and merchant banks to address the ongoing bearish trend. However, according to market insiders, they were unable to reach any decisions that could boost investor confidence.

Top officials at brokerage firms and merchant banks who participated in the BSEC meeting stated that the liquidity crisis is the main problem in the market. However, no one could provide a good solution on how liquidity would be addressed.

As always, the regulator has called for increased investment from broker dealers, various banks, and mutual funds.

Leaders who attended the meeting expressed concerns that no reputable companies have been listed for years. Serious doubts are arising regarding the quality and transparency of the companies being listed.

They further stated that the stock market is being manipulated, and no measures are being taken at the responsible level to prevent such manipulation.

Due to a lack of good governance, investors have lost confidence in this market and are withdrawing their investments.

After an unproductive meeting, the BSEC is striving to halt the downward spiral in the stock market, which was triggered by the removal of a significant regulatory curb—the floor price. In response, the commission has once again turned to its regulatory toolkit.

As per the latest directive issued on 24 April, the BSEC has mandated that from 25 April onward, no stock can experience a decline of more than 3% per day, significantly narrower than the previous 10% limit, across both the Dhaka and Chattogram bourses.

Earlier, on 19 March, the DBA held a meeting among the top brokers and stated in a press release that they expressed their anticipation that the market should soon take the right course, attracting investors to lucrative stocks at cheaper prices.

They urged policymakers and regulators not to consider any radical market interference, such as reinstating floor price restrictions.

Their major demands, according to the statement quoting DBA President Md Saiful Islam, included listing more of the well-performing companies to increase the supply of quality stocks, strengthening the mutual fund sector, ensuring reforms in the stock categorisation system and margin loan regulations, and ensuring compliance in listing and operating listed firms.

Investor confidence remains subdued

Despite several policy changes, investor confidence in the country's capital market remains subdued, as reported by the World Bank in its "Bangladesh Development Update," released on 2 April.

In its report, the World Bank mentioned that the BSEC withdrew floor prices on equities on 18 January, a move deemed to have alleviated a major market distortion.

Through the floor price, which was imposed in July 2022 to prevent the fall of the stock market, the regulatory body artificially kept the market within a limit for more than one and a half years, said the global lender. But after the floor price restrictions were lifted, the market could no longer be tied, it said.

Moreover, FTSE Russell, a subsidiary of the London Stock Exchange Group, has maintained the rating for the Bangladesh capital market as "Not Met" in the criterion of efficient trading mechanisms as the bourse has yet to fully lift the floor price restrictions.

FTSE Russell is a leading global provider of index and benchmark solutions, spanning diverse asset classes and investment objectives.

In a report titled "FTSE Equity Country Classification Interim Announcement March 2024," published on 27 March, FTSE Russell stated that the "Efficient Trading Mechanism" criterion for Bangladesh has been downgraded from "Restricted" to a "Not Met" rating.

FTSE Russell has noted that following the recent announcements by the BSEC to lift the floor price restriction on all but six listed securities, it continues to engage with the regulator to confirm when the final restrictions will be lifted.

DSE underperforms compared to regional peers

DSEX, the key index of the Dhaka Stock Exchange (DSE), experienced a significant drop of 6.79% in March, marking the worst performance among its peers. This decline can be attributed to the enduring pessimism prevailing on the trading floor, characterised by subdued market sentiment and escalating tensions regarding the market outlook.

Market capitalisation to GDP ratio also declined to 13.7% at the end of March, down from 16% in March last year.

During the month, Sri Lanka's capital market's main index returned 7.04%, which was the highest return among the countries. Pakistan's capital market's index return was 2.71% during the period while it was 0.47% in China and 0.21% negative in India.

The index returns of Vietnam's main bourse were 2.35%, followed by Indonesia 0.68% negative and Philippines 0.23% negative, according to the monthly report of EBL Securities Limited.