Post-election optimism fades as investors await overhaul of market regulator

Infographic: TBS

Dhaka Stocks has lost momentum after an initial post-election rally, as institutional investors adopted a cautious stance amid growing expectations of a leadership change at the capital market regulator – a long-standing demand of retail investors.

The newly formed government has already begun searching for a new Bangladesh Securities and Exchange Commission (BSEC) chairman, as the existing commission, formed during the interim administration and headed by Khondoker Rashed Maqsood, failed to restore investor confidence.

The regulator is also likely to undergo restructuring, according to officials familiar with discussions at the finance ministry, as policymakers seek broader structural reforms in a market that has underperformed relative to the country's economic growth, frustrating both local and foreign investors.

Finance ministry sources said several private-sector professionals, along with a professor from the University of Dhaka, have shown interest in leading the commission. However, capital market stakeholders said they favour market-oriented leadership from the private sector due to bitter past experience.

The benchmark DSEX index climbed nearly 200 points to a five-month high on 15 February – the first trading session after the BNP's landslide victory in the 13th national election – reflecting initial investor optimism over the new government.

The upward trend, however, proved short-lived. The market turned negative from the very next session amid uncertainty over whether the existing commission would remain in place.

Finance Minister Amir Khosru Mahmud Chowdhury also hinted at restructuring the regulator in a recent comment, saying the current upward trend may reflect expectations of a democratic government, but stressing that only sustainable, structural reforms can ensure long-term stability.

Speaking to journalists at his residence in Mehedibag, Chattogram, on Friday – during his first visit to the port city after taking the oath as a minister in the new government – Khosru said temporary gains driven by sentiment would not bring fundamental change to the capital market.

The minister said the government planned comprehensive reforms, including amendments to laws and regulatory frameworks, while strengthening the role of the BSEC. He stressed the need to improve regulatory effectiveness, enhance transparency and adopt a zero-tolerance stance against irregularities.

Khosru also said efforts would be made to bring fundamentally strong and profitable companies to the stock market and attract both domestic and foreign investment funds to improve liquidity and rebuild investor confidence.

Investors seek market-friendly leadership

A senior banker at a private commercial bank told The Business Standard that the sharp rise on the first trading day after the election reflected investor confidence, particularly as shares linked to BNP-aligned business groups recorded notable gains.

Wishing not to be named, the banker said investors are expecting a restructuring of the commission, as the current chairman is seen as not market-friendly and has been unpopular from the outset due to creating distance from stakeholders.

"The government should appoint someone market-oriented to lead the regulatory body, either from market participants or from academia, like a finance professor," the official said.

Former banker Khondoker Rashed Maqsood assumed office as BSEC chairman following the regime change on 5 August 2024. During his roughly one-and-a-half-year tenure, he faced repeated protests from investors who accused the regulator of failing to revive market performance.

Stakeholders said trading activity weakened as key market players distanced themselves from the regulator, resulting in persistently low turnover. Moreover, no new initial public offerings (IPOs) entered the market under his leadership, further straining merchant banks.

Maqsood's commission also imposed what many described as unrealistic fines totalling nearly Tk1,000 crore on various companies and individuals over past corruption and market manipulation, creating negative sentiment among investors.

Longstanding governance concerns

While Asian frontier markets have grown rapidly, Bangladesh has lagged behind over the past 15 years under the leadership of former BSEC chairmen M Khairul Hossain and Shibli Rubayat Ul Islam, who critics say failed to establish proper governance in the market.

Both were finance professors at Dhaka University and faced allegations of corruption and collusion in market manipulation with certain stakeholders.

Shibli Rubayat, who resigned in August last year following the regime change, was arrested in February in a corruption case filed by the Anti-Corruption Commission (ACC). 

He was also permanently barred by the BSEC from all capital market activities over his involvement in a share price manipulation scheme linked to Padma Printers and Colour.

Khairul Hossain, who led the regulator from 2011 to early 2020, was criticised for approving numerous financially weak companies for IPOs, often at inflated prices, which analysts say eroded investor confidence despite strong macroeconomic growth at the time.

His successor, Shibli, who took charge in 2020, was accused of shifting focus away from strengthening the primary market and instead fostering alleged collusive ties with certain market players and insider traders, prioritising short-term gains in the secondary market over long-term stability.

Following what stakeholders describe as unsuccessful leadership by academic appointees, market participants are urging the government to choose a chairman with both technical market knowledge and public policy understanding.

A merchant banker, speaking on condition of anonymity, said investor distrust in the existing commission was evident in market performance during the interim government period.

He added that while university professors may have theoretical expertise, they often lack the practical experience of private sector players. He suggested the new commission should include a mix of academics and private sector professionals to help restore investor confidence.