The government will form a high-profile committee in 15 days to probe the stockmarket crash as part of its efforts to salvage the sinking stockmarket, said Finance Minister AMA Muhith yesterday.
“We will prepare a complete reform package for the market,” Muhith said at a press conference in his ministry.
The decision came after a four-hour meeting between the finance minister and stakeholders including trade bodies, stock market operators, regulators and the central bank at the state guesthouse Padma in the morning and another with the SEC and other stakeholders.
Muhith said all stakeholders including the government, the Securities and Exchange Commission (SEC), two stock exchanges, merchant banks, institutional and general investors had a 'special role' behind the stock market crisis.
“I only spoke about the Securities and Exchange Commission and us yesterday [Saturday]. There is enough to look at the way stock exchanges, merchant banks, institutional investors and general investors had behaved. It is fortunate that there is still enough scope to look at it,” he said.
“Thanks to CDBL, we will be able to see how transactions have been made. We can easily find the accounting of book building method. It is likely that many things will come to light following the probe.”
He said the market will open tomorrow, not today, to give it some time to keep pace with a few new steps.
“To restore confidence to the investors, we want to adopt some regulations and practices that will take effect from Tuesday.”
The minister said it is more important to find the areas where they had not acted accordingly, rather than finding out the faults, and how they can correct those. The probe committee will look into this issue.
“We will soon fix terms and references and set up the committee. We will take steps so that they can submit their report within a stipulated time,” he said.
The minister admitted that the decision of shutting the market was not just.
“The market should be allowed to run its own course for stability.”
Muhith said it was not unnatural to have a price-earning (PE) ratio close to 23 on the day the market fell 630 points.
“It was not wise to resort to violent behaviour over the issue.”
He said there might be a lack of coordination in running the market. “The Bangladesh Bank, SEC and stock exchanges regularly hold talks, but the frequency and intensity of the discussion should go up at the moment.”
“The SEC advisory board comprised of stakeholders needs to sit more frequently to revamp the market as it has not been effective enough,” he said.
Muhith said the board will be restructured in a week or two so that it can play a robust role.
He said they plan to prepare a reform package in various areas such as private placement but that will take time.
“We do not have adequate regulations about private placement.”
The finance minister backed introduction of the book building method saying they adopted the method to get a better result.
“But we did not see the result when it mattered. We have suspended the system but have not ditched it. We have to redesign it,” he said.
On the margin loan, he said: “we will set the margin limits tomorrow [today]". The rest depends on the lenders and borrowers. They will fix that. We will not intervene beyond that.”
He said they have used the ad hoc measures too much but want to stop that now.
There was a circuit breaker all the time for individual companies to stop trading after a certain fall or increase. A software had been developed for that, Muhith said.
“We are reviewing the system and will bring some changes to it. We have to design a software and ready it for use by Tuesday. The circuit breaker will also be under review.”
The minister said the index circuit breaker imposed at the last moment would not continue as they are yet to develop a software to put the system in place.
The government now consider bringing changes to the banking laws to introduce buyback practice available in many countries.
“Many countries have buyback policy. But we do not have such regulations. We are still following the 1913 Companies Act that saw some minor changes. India and Sri Lanka have reformed the law extensively.”
The minister ruled out the speculation that billions of taka were drained from the market.
He however admitted that some money had been taken out of the market and they are looking into the matter.
Defending the government's book building policy, he said, “Three companies were allowed to run on the book building method since the present government assumed power. Of them, there is no question about RAK Ceramics. But we have stopped the transaction of the other two companies.”
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