Dhaka bourse plans to strengthen delisting framework

Infographic: TBS

As existing rules prove insufficient to meet market needs, the Dhaka Stock Exchange (DSE) plans to amend its delisting rules, as some listed companies have become non-compliant and fall under the criteria for removal from the secondary market.

Despite having a mandate to delist the companies, the DSE did not enforce the rules due to a lack of general investor protection.

Recognising the urgency of enhancing governance in the capital market and among listed companies, the country's premier bourse has initiated the development of new delisting rules with input from stakeholders.

In addition to incorporating stakeholder feedback, the bourse will also consider delisting practices followed by peer countries to ensure a well-structured and effective framework.

Once the stakeholders' opinions and proposals are compiled, the DSE will submit them to the Bangladesh Securities and Exchange Commission (BSEC), urging amendments to the existing rules.

"We will submit our recommendations to the stock market regulator, requesting the formulation of comprehensive delisting rules. The commission will then take the necessary steps in this regard," said Mominul Islam, chairman of the DSE.

The DSE maintains listing regulations, 2015 to enlist companies and regulate them.

Sources involved in the process said the existing rules mandate delisting for non-compliance issues such as being non-operational, failing to pay dividends for years, not paying listing fees, and other causes.

However, the rules do not address what will happen to or how general investors will be compensated or how they will get returns on their investment in the company.

Mominul said, "The current delisting rules are incomplete. If a company is delisted under the existing laws, general shareholders will suffer losses. It is necessary to amend the rules to bring company owners or sponsors under legal accountability."

He added, "In India, delisting rules are strictly followed. Just like punitive measures are taken against bank loan defaulters, similar actions are enforced when a listed company is delisted. However, our laws do not specify any such measures. It is now crucial to incorporate this provision."

Rules not enforced

In 2018, the DSE delisted two companies from the main board in line with listing rules. Later, a firm returned to the main board.
As of date, no actions have been taken against any firm despite being non-compliant.

DSE's failure to take action against non-compliant firms sometimes led to manipulation and artificial inflation of share prices.

As a result, new provisions are being considered. These include asset seizure and liquidation, with proceeds paid to investors on a pro-rata basis.

These measures may also be added as punitive actions against owners, similar to those taken in cases of loan defaults.

Just take a recent example, Khulna Printing and Packaging, a listed firm remained non-operation for years and there was no sign of becoming operational soon. But its share price increased significantly. 

A similar case also occurred for Appollo Ispat, which has remained non-operational for years. Government-owned Shaympur Sugar Mill and Zeal Bangla Sugar Mills have not paid any dividends for years depriving their shareholders. 

However, the DSE did not take any action against the companies. 

Sattique Ahmed Shah, acting managing director of the DSE, told TBS, "We are working on modernising or amending the de-listing rules. We have sought opinions from stakeholders and examined the de-listing processes followed by peer countries.

"Based on this, a proposal has been prepared, which will be submitted to the commission after completing the necessary procedures."

Saiful Islam, president of the DSE Brokers Association, said, "Globally, delisting listed companies is a common practice. Our country also has laws for delisting, but they are not effectively implemented.

In particular, there are no provisions to protect investors' interests when a company's shares are delisted. Therefore, it is essential to modernise the law, keeping in mind that general investors should not suffer losses."

What are in existing rules?

As per listing rules, any listed securities may be de-listed for any of the following reasons — if the issuer has failed to declare dividend (cash/stock) for a period of five years, if failed to hold its annual general meeting for a consecutive period of three years, if the issuer has gone into liquidation either voluntarily or under court order or has stopped its commercial operation/production/exploration for a period of consecutive three years and if the issuer has failed to pay the annual listing fees as prescribed in these regulations or any other dues payable to the exchange for a period of three years. 

Also if the commission or the exchange issues any order to de-list the securities for non-compliance of any provision of these regulations or any other securities laws in force.

The rules mandate that instead of suspending trade of any listed securities instantly upon closure of operation of the issuer, the exchange shall regularly disseminate on the trading monitor to the effect that if the situation of the issuer which fails to hold its AGMs and issue annual reports, and simultaneously the operation of the issuer remains closed for more than six months, is not improved within the next six months from the 1st date of such dissemination, the exchange shall de-list the securities upon completion of the said six months of dissemination.

The rules also mandate that no securities will be de-listed unless the issuer has been given an opportunity to be heard.