Why brokers want a smaller DSE board with fewer independent directors
DBA proposed cutting the DSE board from 13 to 11 members by reducing the number of independent directors from seven to five
Citing an "imbalance" in the current structure of the Dhaka Stock Exchange (DSE) board, the DSE Brokers Association of Bangladesh (DBA) has proposed reducing the board size from 13 to 11 members and cutting down the number of independent directors. The move aims to ensure more balanced decision-making and support the sustainable development of the capital market.
In a letter addressed to Dr Anisuzzaman Chowdhury, special assistant to the chief adviser and chairman of the Capital Market Development Committee, the DBA also called for a review of the DSE's demutualisation scheme, hoping to enhance governance, operational efficiency, and market confidence.
As per the proposal, the restructured board would comprise five independent directors nominated by the Bangladesh Securities and Exchange Commission (BSEC), four shareholder directors elected by the exchange's shareholders, one director from the strategic investor, and the managing director as an ex-officio director with voting rights.
The DBA further suggested that the position of board chairperson be open to all directors except the ex-officio member, with the chairperson to be elected at the board's first meeting after its formation.
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To ensure independent functioning, the board must have a majority of independent directors. However, more caution is needed in selecting them.
If the proposed changes are approved, the DSE board will have an equal number of independent and shareholder-related directors – five each, including one representing the strategic investor.
Under the current structure, a majority of the DSE board members – seven out of 13 – are nominated by the BSEC, while four are elected shareholder directors, one represents the strategic investor, and the managing director holds an ex-officio position. The existing scheme also mandates that the chairperson must be selected from among the independent directors.
Saiful Islam, president of the DBA, told The Business Standard, "Previously, independent directors were nominated by the BSEC on political grounds, which undermined the true purpose of the demutualisation scheme. If this trend continues, any elected government in power may follow the same practice. That is why we have urged the government to review the scheme."
"Some of the directors nominated by the regulator come from diverse sectors without adequate capital market knowledge, rendering them ill-equipped to make informed decisions or contribute meaningfully to the market's development," he said.
"Furthermore, the majority presence of independent, non-shareholding directors has enabled them to pass decisions without sufficient representation of shareholder interests. This practice has significantly contributed to the politicisation of the capital market. We fear a repetition of the same if a political government comes to power in future," he added.
Faruq Ahmad Siddiqi, former chairman of the BSEC, opposed the proposals, saying that if implemented, they would contradict the demutualisation scheme, which mandates the segregation of ownership and management from trading rights.
He said reducing the number of independent directors on the DSE board would not be justified. "There should be at least one more independent director than shareholder directors. Although the DSE was demutualised in 2013, the intended outcomes have not been fully realised. In practice, ownership and management have not been effectively separated."
He added, "To ensure independent functioning, the board must have a majority of independent directors. However, more caution is needed in selecting them. Only individuals with substantial knowledge and expertise in capital markets should be appointed as independent directors so they can actively contribute to market development."
Changes sought in CRO reporting structure
The DBA also proposed revising the reporting structure of the Chief Regulatory Officer (CRO), who currently reports directly to the Regulatory Affairs Committee (RAC).
The DBA suggested that the CRO should also have an administrative reporting line to the CEO. Currently, there is no obligation for the CRO to report functionally to the managing director or CEO, which leaves the managing director completely detached from regulatory aspects of the capital market.
"This lack of coordination hampers the managing director's ability to effectively engage with market participants on regulatory matters or manage unusual market situations, leading to an expectation gap and growing distrust among market intermediaries," the letter reads.
In light of this, the DBA proposed that the managing director act as the CRO's dotted-line reporting authority and be kept informed of all CRO activities within his jurisdiction. At the same time, the CRO would continue to maintain direct reporting responsibility to the RAC of the stock exchange.
Justifying the proposal, the DBA said the managing director serves as the head of the organisation and is responsible and accountable for all capital market matters within the DSE's scope, authority, and jurisdiction. This change would enhance coordination with market participants on regulatory issues, improve the management of unusual market situations, and help restore confidence among intermediaries in the stock exchange.
When asked, Saiful Islam said, "We proposed the CRO's revised reporting structure based on real examples. Sometimes, the CRO becomes autocratic, as there is no obligation to report to the managing director. This has led to incidents where the CRO initiated probes into share trading independently, without coordination."
The DBA noted that the current management structure of the exchange, as outlined in the scheme, follows a rigid and static organisational chart, which limits the DSE's operational flexibility. It proposed removing this chart from the scheme altogether.
The association argued that the authority to design and adjust the organisational structure should rest solely with the DSE board, enabling it to make timely and effective business decisions as needed. This, it said, would help empower the exchange and allow it to function more effectively as a Self-Regulatory Organisation (SRO).
