Regulator rejects govt bid to take over Tk1,500cre investor funds

The Bangladesh Securities and Exchange Commission (BSEC) has refused a request from the finance ministry to transfer approximately Tk1,500 crore held in the Capital Market Stabilisation Fund (CMSF) to the state treasury. 

The amount includes Tk632 crore in cash and Tk913.21 crore in unclaimed stock dividends belonging to general investors.

The finance ministry, in two separate letters, instructed the capital market regulator to deposit the cash reserves into the government's coffers and to liquidate the unclaimed stock dividends through the Investment Corporation of Bangladesh (ICB) to channel the proceeds similarly. 

Furthermore, the ministry proposed dissolving the fund and incorporating a new clause in the relevant legislation to mandate the transfer of such funds to government accounts.

However, the BSEC has countered, asserting that appropriating the funds belonging to general investors is not legally permissible. The regulator formally communicated its stance to the finance ministry in a letter issued in the final week of April.

BSEC Director and Spokesperson Abul Kalam said, "The money deposited in the CMSF is the private wealth of the investors. They can claim it at any time by making an application." He confirmed that the commission had informed the finance ministry of its position on the matter last month.

Multiple anonymous officials within the finance ministry indicated that this move is a "high-level government decision." They revealed that a proposal to dissolve the CMSF and transfer its assets to the state treasury had been approved in a meeting. 

While no specific reasons were officially provided, these officials suggested that concerns regarding irregularities, unnecessary staffing, excessive board meetings and a lack of effective performance might be contributing factors.

What are unclaimed stock dividends

Unclaimed dividends refer to cash or shares that investors have not claimed within three years of being declared by listed companies. Following the three-year period, these assets are transferred to the CMSF under the BSEC's directives.

Currently, the CMSF has invested a total of Tk325 crore in the capital market to provide stability. According to CMSF data, the fund currently holds Tk757.26 crore in cash and Tk607.15 crore in shares. To date, 2,140 investors have received Tk701 crore in cash dividends, and 1,611 investors have been returned shares worth Tk345.11 crore.

The BSEC fears that depositing these funds into the Treasury Single Account (TSA) would create complications in settling future claims from investors and erode investor confidence in the capital market. Moreover, the regulator argues that the investors are the rightful owners of these funds, potentially leading to legal challenges.

BSEC's alternative offer

In response to the proposed dissolution, the BSEC has offered an alternative. This includes retaining the necessary personnel to manage the accounts and settle the claims of approximately 341,000 investors, allowing the CMSF to utilise its own resources, and continuing office operations as needed. 

The CMSF was established in 2021 with the aim of stabilising the capital market and restoring investor confidence. The fund's capital is allocated in three ways: 40% is directly invested in securities, 50% is used for margin loans to market intermediaries, and 10% is placed in fixed deposits and other securities. The CMSF has so far invested Tk325 crore in the market.

However, some observers believe that the fund has not had the desired impact. Concerns have been raised about the effectiveness of the CMSF, citing numerous board meetings, honorariums, and excessive expenses. Over the past three years, the CMSF has held 323 meetings, incurring an expenditure of Tk332 crore on meeting allowances.

Globally, several countries have successfully utilised similar funds. For instance, India's SEBI established the "Investor Protection and Education Fund" in 1992, which helped restore market confidence. The United States used the "Exchange Stabilization Fund" in 2008, and China employed the "Securities Investor Protection Fund" in 2015 to stabilise their respective capital markets.

Stakeholders in Bangladesh believe that with proper management, the CMSF could still play an effective role in safeguarding the interests of investors.