The DSE Brokers Association of Bangladesh (DBA) has urged the government to involve the securities regulator in the process to amend the Companies Act, 1994.
The association made the request in a letter sent to the commerce ministry on Wednesday, as recommendations from the securities regulator have been overlooked in the third amendment to the act.
As the statutory regulatory authority of the capital market and listed companies, the Bangladesh Securities and Exchange Commission (BSEC) should have the authority to formulate a clear and effective regulatory framework for important matters, such as share buybacks, mergers and acquisitions, said the DBA.
"This would make it easier to ensure quick decision-making, effective regulation, transparency and good governance of the listed companies," reads the letter signed by DBA President Saiful Islam.Business News
The BSEC recently urged the government to incorporate its four recommendations in the amendment process to ensure good governance in the market and protect the interests of general investors.
The recommendations were about share buybacks, mergers and acquisitions, financial statements and the extended validity period of financial statements of listed companies.
The draft amendment prepared by the commerce ministry has not incorporated any of the recommendations.
In its letter, the association of stockbrokers also urged the government to grant the BSEC the necessary power to formulate and implement rules and regulations for share buybacks.
The existing Companies Act has no provision for share buybacks, except for capital reduction through a court order. A company's capital can be reduced through certain permissible means, including the subtraction of losses from the capital.
On the other hand, in a share buyback, a company uses its own cash to purchase some of its outstanding shares from the market. Those shares are usually cancelled or held as treasury shares, depending on the legal framework.Bangladesh business insights
Given the dire state of the capital market, share buybacks would create demand for shares while also enhancing liquidity and earnings.
The existing provision for mergers and acquisitions deprives company shareholders of returns on their investment, while the securities regulator is not treated as a party to the scheme.
Many listed companies have merged with non-listed entities.
As many as 10 shares of a listed company have been issued against one share of a non-listed company from the same business group. As a result, shareholders of unregulated, non-listed companies received larger amounts of liquid shares in well-regulated companies.
The securities regulator believes that if it becomes a party to the merger or acquisition process, it will be able to secure the interests of shareholders of listed companies.
Also, as per the existing provision, a company is required to submit an IPO (initial public offering) proposal along with its financial statements within 180 days of the year-end. As it takes 120 days for a company to obtain audited financial statements, it becomes difficult to submit an IPO proposal within the remaining 60 days.
The securities regulator recommended expanding the validity period of the financial statements to up to 270 days from the year-end.
Supporting the recommendations, the DBA said that formulating modern and effective rules and regulations on these matters would make corporate restructuring and capital management of listed companies easier and more effective.
At the same time, it would increase dynamism in the capital market and protect the interests of investors and other relevant stakeholders, the association added.
