How Shibli-commission clips DSE wings

Infographic: TBS

The Dhaka Stock Exchange has been unable to act as a primary regulator against various irregularities, such as share manipulation, for the past four years, as the Shibli-led commission has clipped the DSE's authority through changes in rules and verbal instructions.

Officials at the country's premier bourse have alleged that frequent intervention by the Bangladesh Securities and Exchange Commission (BSEC) has largely undermined the DSE's ability to ensure transparency, accountability, and fair practices in the capital market and the listed companies.

Since the BSEC, led by the recently departed chairman Shibli Rubayat-Ul Islam, took charge in May 2020, the stock exchange's capabilities have deteriorated significantly.

Until his departure on 10 August, the DSE had virtually no power beyond imposing a meagre fine of Tk5,000 for non-compliance by listed firms.

A former managing director of the DSE told The Business Standard, "The stock exchange is responsible for establishing good governance among listed companies. However, due to interference from top officials of the previous commission, the DSE could not fulfil its responsibilities."

He also noted that the commission's arbitrary actions have prevented the DSE from playing its proper role. He emphasised that empowering the stock exchange is crucial for maintaining order in the market.

Under the listing rules, the DSE is granted significant powers to ensure transparency among listed companies. However, since 2020, the bourse has failed to take meaningful action despite numerous irregularities.

Officials allege that the opportunity for share manipulation through private placements has been exploited by placing individuals favoured by the commission in key positions within the stock exchange.

Qualified officers have been transferred from important departments such as Market Operations, the Investigation Department, and the IPO Review Committee and replaced with preferred officials.

The DSE is a private limited company under the BSEC, and 250 brokerage houses are its primary shareholders.

According to listing rules, the DSE has the authority to de-list a company if it ceases production for three consecutive years. The exchange can also halt trading, suspend or de-list shares of companies that fail to disclose information affecting investment decisions, neglect to pay listing fees for three years, or fail to pay dividends for five years.

Additionally, the DSE has the power to suspend or de-list a company's shares as a punitive measure in cases of share manipulation.

Despite these powers, the DSE has not taken any significant disciplinary action in the past four years.

For instance, Meghna Pet Industries has not been in production for over 18 years and hasn't paid dividends for years. Yet, the DSE has not acted against this Z category company.

Similarly, Shyampur Sugar Mills has been out of production since mid-2020. Despite this, the share price goes up frequently due to manipulation, but the DSE has not taken any action against the loss-making company.

How stock exchange is underpowered

For the last time, the DSE in 2018 suspended share trading of Rahima Food Corporation and Modern Dyeing Company due to non-production for over three years.

However, after the Shibli-led commission took charge, these two companies were brought back to the mainboard in December 2020.

Even when the DSE review team provided negative assessments of companies seeking to raise funds from the stock market, the commission failed to act on their recommendations. Instead, IPOs were approved, many of which are now underperforming.

Recently, the Shibli commission also faced accusations of stripping the DSE of its power to downgrade companies to category Z.

According to stock exchange data, at least 50 companies with non-production, negative retained earnings, and a failure to pay dividends qualify for a downgrade to the Z category. However, the DSE has been unable to implement the process.

DSE's only power is to impose Tk5,000 fine

According to DSE sources, the stock exchange's power to take action against listed companies is now limited to a fine of Tk5,000.

If a company fails to submit its quarterly or fiscal year financial report on time, it can impose a fine of Tk5,000 daily. Failure to pay the listing fee carries the same penalty. However, even if no one pays the fine, the stock exchange is unable to take any action.  

An official of the DSE listing department told TBS, "The stock exchange takes care of whether the listed companies follow the listing rules. However, they could not take action accordingly."

He said, "Even though two companies were de-listed earlier due to stoppage of production, the commission later directed them to be brought back, due to which no other company was de-listed."

Two dozen companies out of production 

According to the DSE's listing department, about two dozen companies are in serious trouble. Some have been closed for an extended period, while others are only partially operational.

These companies have failed to submit their quarterly or annual financial statements or pay listing fees on time.

Despite these issues, the share prices of these companies are rising unusually, often due to the spread of rumours. The stock exchange, however, is unable to take any action against these companies.

When the commission orders an inquiry into the unusual price increases of a company, the stock exchange submits an investigation report.

Upon receiving the report, the commission decides whether to take further action or simply review the findings.

Company inspection

According to the listing rules, the stock exchange is responsible for overseeing the overall affairs of listed companies. It conducts spot inspections to ascertain the true status of these companies. However, such inspections cannot be carried out without the commission's permission.

The listing rules state that the exchange may conduct inspections at any time, with the commission's prior approval, if it is necessary to protect investors' interests or to review the affairs of any issuer of listed securities.

The exchange is required to report to the commission within 15 days of completing such an inspection.

In 2021, the stock exchange wrote to the BSEC, noting that obtaining approval for inspections is time-consuming and hampers the ability to accurately assess the status of companies.

The letter requested authority from the commission to conduct inspections without prior approval.

However, after three years, the commission has yet to make a decision on this matter.