Stocks volatile as investors fear a BB-BSEC divergence

Following a month of market recovery, Dhaka-Chattogram stocks entered into a volatile phase at the beginning of this week.

Market professionals blamed a sudden rumour on Sunday that the securities regulator might revoke the price floor that helped the market recover from a 14-month low and the top officials of the Bangladesh Securities and Exchange Commission (BSEC) assured investors that the commission was not even thinking of it.

Still, the market faced another big selloff on Monday, following the Sunday's nosedive and in the evening a central bank letter to the BSEC chairman was found to be the reason for continuation of the fall.

The Bangladesh Bank in its letter dated 5 September said secured bonds would remain included in the list of listed securities it consider as banks' capital market exposure and that was a blow to capital market investors who were expecting an exclusion of the same as the BSEC Chairman Professor Shibli Rubayat-Ul-Islam was publicly expecting it in the recent weeks.

Stockbrokers and analysts said the central bank letter did not come as any fresh blow to the stock market, but it did hurt optimism of investors who were counting on a policy perspective convergence between the regulators of the capital market and the money market, following the joining of new governor Abdur Rouf Talukder in July.

Following his joining, the BB responded to the BSEC's long-pending recommendation to calculate lenders' capital market exposure based on the cost prices of held securities, instead of market prices that often force lenders to sell off listed scrips at some points of market rally, which tend to push the market down.

The market participants this week were further unnerved ahead of a coordination meeting between the two regulators hosted by the Bangladesh on Tuesday as they feared an unexpected divergence regarding policies having impacts on the capital market.

Central bank sources told The Business Standard that the new governor in his first presence in the coordination meeting raised questions about the legal basis and structure of the Capital Market Stabilisation Fund (CMSF) formed by the BSEC.

Some banks are not depositing their unclaimed dividends and shares to the fund, citing a need for central bank nod and the two regulators have been in discussion to resolve the issue.

BSEC Commissioner Shaikh Shamsuddin Ahmed who led the BSEC team in the meeting opposed the term "raising question".

Following the meeting, he told TBS there had been questions and clarifications and the first coordination meeting with the new governor was the most cordial one among many he has been attending in the recent years.

"I believe the governor was satisfied with our points regarding the motive, function and the basis of the CMSF," he said.

He also hoped that the BSEC officials were successful in making the governor understand that the unclaimed dividends and the unclaimed deposits are two different things.

Citing the Bank Companies Act's provision that unclaimed deposits would be under central bank's custody, not depositing unclaimed dividends to the CMSF should not be fair, said the BSEC Commissioner.  

CMSF has been built out of listed firms' unclaimed dividends, shares and non-refunded IPO subscriptions for capital market stabilization.

Governor Abdur Rouf Talukder, who was serving the government as the Finance Secretary before joining the central bank, made suggestions that the BSEC should onboard a finance ministry representative and engage the state-owned Investment Corporation more with the CMSF for its independence and efficiency, according to BSEC Commissioner Shamsuddin.

The meeting did not discuss bonds as an element of banks' capital market exposure as the BSEC Chairman would meet the governor again after returning home from his official trip to Indonesia.

Nomination and remuneration committee (NRC) of listed banks' boards, which is required by the BSEC's Corporate Governance Code, but not allowed by the central bank, was discussed and the governor gave a patient hearing why the Bangladesh Bank should allow this in line with the international practices, according to BSEC officials.

Some other minor issues were included in the discussion, they added.

DSEX, having high volatility over the day, finally closed 0.61% higher at 6,470 on Tuesday, while the index had hit a 16-week intraday high of 6,585 on Sunday.

Amid investors' confusion regarding market direction turnover in the Dhaka Stock Exchange declined by 6% to Tk1,315 crore on Tuesday.