It’s time regulators remain alert about capital market: Ex-BSEC chairman

Faruq Ahmad Siddiqi, former chairman of the Bangladesh Securities and Exchange Commission, said there is no need to be concerned over the current index and average price-to-earnings ratio in the capital market, but it is time to be cautious. 

The regulators have not been careful enough regarding these issues, he said in an interview with The Business Standard's "TBS Money" programme on Tuesday. The Business Standard's Executive Editor Sharier Khan took the interview through a virtual platform. 

Faruq Ahmad Siddiqi also said the BSEC should maintain good cooperation with the Bangladesh Bank on policy issues.

He said, "The market has been on the upswing for various reasons for quite some time. It is not a bad thing at all. The market has been at the bottom for a long time. In that respect, the market situation is good."

"The main weakness, however, is that good stock prices have not risen as much as junk stock prices. The price movement of junk shares is usually higher in the market almost all the time. The price movement of quality shares is usually less than that," he said.

Elaborating on his own experience, he said, "We have seen in 2010 or 2011 that the price of junk shares rises dramatically when the market goes up. It creates an extreme turmoil in the market. The main reason for this is that most of the investors are traders. They do not care about the quality of the company. They do not even believe in dividends. They also do not believe in long-term capital gains. They want to invest today, to make a profit after seven days. Their resource based knowledge is also low."

"As a result they invest into junk shares. And there are probably some syndicates around to encourage it. There are some manipulators who buy the shares at a lower price and then go into the pump and dump process. When people rush to buy those shares, they (manipulators) dump them," he continued.

Highlighting the responsibilities of the regulatory body, he said, "It is the regulator's responsibility to detect through surveillance whether there is any manipulation in the market. Their main duty is to stop manipulation and to ensure transparency in trading."

He continued, "I do not think there is a situation in the market similar to that of 1996 or 2010. However, indiscriminate investments have already created a risky atmosphere there.

"Secondly, there is now less profit-taking or correction. If the market goes up, and continues on that path, the BSEC could lose control over it. We must be conscious about the issue before the situation reaches that level."

"There is no reason to be concerned about the market right now," he added.

When asked what the regulator should do in this situation, Faruq said, "I think the BSEC is encouraging the price increase of shares. Their policies seem to lean towards supplementing the investments in the market and margin loans.

"Those tasked with regulating the market should not participate in boosting it, they should focus on ensuring transparency in the process. If it seems like the market is spiraling out of control, the regulator should make a policy decision to uphold discipline there."

Discussing the matter of market manipulation, he said, "Detecting manipulations might not be difficult, but it is not very easy either. The primary reason is that many shares exist under different names.

"Sometimes, a BO owner does not even know that there is a BO account in his/her name. There are many investors who operate 50/60 BO accounts."

He further said it is very important to conduct a study on the share market, but no serious ones have been conducted so far. "I do not think the economists are very interested in this matter either," he opined.