Why the stock regulator failed to restore investor confidence

Infographic: TBS

The country's stock market has remained in a downward trajectory for the past nine months since August last year, as the newly appointed commission, led by Khondoker Rashed Maqsood, has allegedly failed to earn the trust of stakeholders and investors by addressing the issues that have plagued the market in the past.

Stakeholders and retail investors have blamed Maqsood's leadership for the persistent downturn in market indices, which has resulted in significant losses for investors. Commission officials, on the other hand, criticised the stock brokers saying they are unhappy with the regulator as they want to run their business according to their will.

The DSEX, the key price index, which stood above 6,000 points when Maqsood took office on 18 August under the interim government, dropped below 5,000 points, hitting 4,802 on 7 May—the lowest level since 23 November 2020.

Daily transaction values fell sharply – from an average of over Tk800 crore to just Tk300 crore – after Maqsood's appointment, leaving 90% of market intermediaries in heavy loss.

Till 8 May, the market capitalisation of listed companies and mutual funds had dropped by around Tk78,000 crore to Tk3.31 lakh crore.

This prolonged market underperformance triggered anger among investors, many of whom began protesting and demanding Maqsood's removal and direct intervention from the chief adviser.

In this situation, Chief Adviser Muhammad Yunus convened a meeting at the State Guest House Jamuna at 12pm on Sunday to address the crisis and find a way forward. However, stakeholders were not invited. According to a 6 May notice from the Financial Institutions Division of the Finance Ministry, the meeting would be attended by the chief adviser's special assistant, the finance adviser, the secretary of the Financial Institutions Division, and the BSEC chairman.

When asked about the lack of cooperation with stakeholders, a high-ranked official of the commission said they held several meetings with top brokers on various issues. 

Wishing not to be named, he said they also solved a long pending crisis about negative equity through discussion with stakeholders.

He further said that the stock brokers seem to be unhappy with the regulator as they want to run their business according to their will.

Lack of cooperation between the regulator and stakeholders keeps the market bleeding

Speaking to market insiders, The Business Standard found that Maqsood had distanced himself from stakeholders from the start of his tenure—one of the key reasons behind the prevailing lack of investor confidence.

For instance, following the resignation of seven independent directors during the July market turmoil, the DSE Brokers Association of Bangladesh (DBA) on 25 August urged Finance Adviser Salehuddin Ahmed to restructure the Dhaka Stock Exchange (DSE) board to restore its functionality. The letter also included recommendations for reconstituting the board.

However, the newly formed BSEC used special powers granted by the Demutualisation Act to appoint seven independent directors, bypassing the DSE's recommendations.

Three of those appointees reportedly violated the rules, rendering the board dysfunctional for several months. The commission was forced to revise its selection of board members three times—seen by many as a clear sign of regulatory inefficiency.

This marked the beginning of a communication breakdown between the commission and market stakeholders.

The situation worsened when the BSEC formed a task force that included three individuals previously rejected by the DBA as DSE board members. This move deepened discomfort among stakeholders. 

A DSE member, speaking on condition of anonymity, said the task force failed to consult stakeholders before preparing its report and held only one meeting—on the eve of its submission—merely for formality's sake.

Additionally, a focus group was formed to support the task force, but its membership included controversial figures, further fuelling stakeholder concerns, claimed several stakeholders wishing not to be named. 

The new commission also imposed fines totalling nearly Tk1,000 crore on various companies and individuals for past corruption and market manipulation. However, none of the penalties could be recovered. Stakeholders criticised the move saying the "unrealistic" fines sent a wrong message to the market.

Though the BSEC formed an inquiry committee to investigate past irregularities and corruption, its composition drew criticism. One member, who had previously been involved in mutual fund management and had sued the BSEC multiple times, was deemed an inappropriate choice.

Recently, protests by BSEC officials demanding Maqsood's removal exposed further cracks in the commission's credibility. Despite the presence of officials previously accused of corruption, no disciplinary action was taken by the new commission. These same officials eventually turned against Maqsood, damaging the commission's image in the market.

Ultimately, 21 BSEC officials were suspended for violating service rules during the protest in which employees demanded the chairman's resignation.

When contacted for comment, BSEC Chairman Khondoker Rashed Maqsood declined to speak on the matter.