Capital Market Stabilisation Fund to undergo major reforms

Infographics: TBS

The Capital Market Stabilisation Fund (CMSF), which has faced long-standing criticism over structural weaknesses, management inefficiencies, and questions about its long-term sustainability, is set to undergo major structural and managerial reforms.

To implement these changes, the Financial Institutions Division prepared directives for the finance ministry. A recent high-level meeting focused on restructuring CMSF operations to make the fund more effective, transparent, and sustainable.

The meeting, chaired by Finance Adviser Salehuddin Ahmed, included senior officials from the Bangladesh Securities and Exchange Commission (BSEC), the Financial Institutions Division, the Dhaka Stock Exchange (DSE), and the Chittagong Stock Exchange (CSE).

Since its inception, the CMSF has received Tk697.10 crore in cash from issuer companies. Of this cash fund, it has settled investors' claims of Tk9.40 crore. It also received 14.37 crore shares declared as stock dividends but not disbursed to investors. Of these shares, the CMSF has settled claims of 3.15 crore shares.

Currently, the CMSF has invested a total of Tk325 crore in the capital market to provide stability. The fund had planned to lend to capital market intermediaries at a low cost, but this did not materialise after the political changeover in 2024.

Under the proposed 2025 legislation, the CMSF will be recognised as a statutory fund, providing legal clarity on its structure, management, financial operations, oversight, and relationship with the BSEC. This legal recognition is expected to strengthen investor confidence and ensure long-term market stability.

A new seven-member board will be formed to oversee the CMSF, chaired by the BSEC chairman. Other members will include representatives from the Financial Institutions Division, DSE, CSE, ICAB, BAPLC, and a CEO appointed by the commission. The board will ensure good governance, transparency, and efficient fund management.

CMSF's human resources will be reorganised to optimise responsibilities, improve efficiency, reduce unnecessary staff, and control costs. The fund's office will operate under sub-lease arrangements at BSEC or BANM offices until December 2026, preventing infrastructure depreciation and avoiding additional expenses.

Interest earned from the CMSF will be used for investment education and raising investor awareness. The CMSF will also function as a centralised dividend distribution hub, ensuring that all listed companies' cash dividends are disbursed efficiently and reliably. A centralised TDS system will provide investors with digital TDS certificates and simplify tax filing, encouraging greater participation in the capital market.

Following the finance ministry's directives, the BSEC has instructed the CMSF to diversify its bank deposits. Funds held in various banks, the Investment Corporation of Bangladesh (ICB), and other financial institutions must be deposited within six months in Sonali Bank, Janata Bank, and Agrani Bank. Fixed deposits (FDRs) must also be encashed upon maturity with interest and redeposited. The CMSF will submit a progress report to the BSEC within three months.

About CMSF

The CMSF was established under the Capital Market Stabilisation Fund Rules, 2021 (CMSF Rule 2021) of the BSEC. The CMSF acts as a custodian of undistributed cash and stock dividends, non-refunded public subscription money, and unallotted rights shares from issuers of listed securities. Cash and stocks in the fund can be returned to claimants by shareholders or investors at any time in the indefinite future.

According to the rules, a maximum of 40% of CMSF's cash balance may be used for direct buying and selling of listed securities. At least 50% of the cash balance must be used for providing loans to market intermediaries for refinancing as margin loans, and up to 10% may be used for investment in other securities, such as fixed deposits, government securities, fixed-income securities, and mutual funds.

To date, CMSF's board has remained vacant, as the tenure of its previous board expired in August last year. Recently, the BSEC rejected a request from the finance ministry to transfer approximately Tk1,500 crore held in the CMSF to the state treasury. This 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 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 this, asserting that appropriating funds belonging to general investors is not legally permissible.