Budget’s attention to capital market commendable

First, I would like to thank the finance minister for giving serious attention to the capital market in the budget document. His remarks were positive and indicate a move toward a more deregulated framework, where stock exchanges handle more operational responsibilities while the Bangladesh Securities and Exchange Commission (BSEC) focuses on supervision, monitoring, and enforcement against wrongdoing.

One major proposal is reducing the trading settlement cycle to T+0. At present, investors face delays in receiving money after selling shares or receiving shares after buying. A T+0 system would allow same-day settlement, which would increase liquidity and trading activity. This is a very positive step.

Another important proposal is reducing the IPO timeline. At present, the process takes too long, sometimes much longer than bank financing. If good entrepreneurs can get bank funding within 15 to 30 days but must wait years to enter the capital market, they will naturally avoid the market. IPO-related obstacles must therefore be removed.

The finance minister also spoke about dual listing and auditors. Strengthening auditor accountability is extremely important because investors depend on audited financial statements before making decisions. Reliable financial reporting is essential for discipline, investor confidence, and reducing insider trading.

The finance minister has repeatedly said he wants to form a commission to identify what needs to be done for the capital market. At present, the market moves within a narrow range, but that does not mean structural change has happened. True structural change means creating a vibrant market where the government itself can raise funds for development projects. If that happens, Bangladesh can move from a frontier market toward an emerging market.

A strong capital market is also necessary to reduce pressure on the banking sector. Banks should mainly provide working capital, while long-term financing should come from the capital market. Otherwise, banks will continue to be burdened with long-term loans and rising non-performing loans.

I believe the current finance minister understands this clearly. He knows that foreign investors are ready to enter Bangladesh, but the pathway must be prepared. For that, BSEC must remember that it is not only a regulator but also a facilitator.

The previous commission focused heavily on investigations and fines, but market development was neglected. Wrongdoers must be punished, but the regulator must also create policies that encourage good companies, large companies, and multinationals to enter the market.

The new BSEC chairman has some advantages. He has worked in multinational companies and understands what policy changes are needed to attract them to the market. He also has experience with foreign institutional investors, which can help bring foreign participation.

However, many technical barriers remain. For example, an industrialist may have bought land years ago personally, but to bring the company to the market, that land must be transferred to the company. Because land prices have risen sharply, registration costs, VAT, stamp duty, and other charges can become extremely high. On top of that, IPO issuance costs are also significant. These barriers discourage good companies from listing.

Investor protection is another major concern. The forced merger of five banks and the statement that investors' shares may become zero sends a damaging message. Those investors provided paid-up capital, often to meet Basel III requirements. Some protection or future share allocation in the new bank should have been considered.

Most market manipulation comes from insider information. Insider trading exists everywhere, but strong laws, strong enforcement, and accountable auditors can reduce it to a tolerable level.

Policy stability is also essential. Investors lose confidence when decisions are changed suddenly, such as extending lock-in periods after investors have already waited for years. The capital market runs like a railway track: if policy leaves the track, the system crashes.

Bangladesh Bank, NBR, BSEC, and other institutions must not make capital-market-related decisions in isolation. Any decision that affects the market should go through proper impact assessment and consultation with the capital market regulator. Otherwise, sudden circulars, tax decisions, or forced mergers damage investor confidence.

If these reforms are implemented, Bangladesh can move toward a deregulated but better-supervised capital market. Investor confidence will improve, foreign investors will come, and the market will become more vibrant.

At present, Bangladesh does not have enough investable instruments for foreign investors. Good local companies, blue-chip companies, and strong manufacturing groups must be brought to the market. The government can create policy and BSEC can issue rules, but the stock exchanges must actively market the capital market to quality companies.

The new commission appears promising, but now it must deliver. The reforms mentioned by the finance minister must be implemented by BSEC. 

Ahmed Rashid Lali spoke with TBS Executive Editor Shakhawat Liton.