The securities regulator is set to finalise the direct listing framework within a month, allowing well-governed private companies, state-owned enterprises and multinational firms to enter the stock market by bypassing the need to float an IPO.
"The draft direct listing rule is almost complete and will be placed for approval at the commission meeting tomorrow (Tuesday)," said Bangladesh Securities and Exchange Commission (BSEC) Chairman Masud Khan on Monday.
The draft will be published for public opinion this week before being finalised within the next month, he added.
Mr Khan made the remarks at an open discussion titled "The Current State of the Bangladesh Capital Market and Way Forward", organised by the DSE Brokers Association of Bangladesh (DBA) at the DSE Tower in Dhaka.
Currently, only state-owned entities can use the direct listing mechanism to list by floating at least 25 per cent of their shares.
Once the direct listing framework is finalised, the Central Depository Bangladesh Limited (CDBL), the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE) will be listed, said the BSEC chief.
The initiative is expected to encourage quality companies to enter the market, particularly large private firms, state-owned enterprises and multinational companies that are otherwise reluctant to raise funds by issuing primary shares.
The commission is also pursuing a series of structural reforms, including a hybrid IPO mechanism, T+1 settlement, activation of the Central Counterparty Bangladesh Limited (CCBL), development of the bond market and introduction of an extended audit for issuers.
Listing of "public interest companies"
The BSEC is also working on a framework to bring certain companies to the capital market.
Referring to Section 20A of the Securities Act, Mr Khan said the commission has the authority to direct companies to come to the market when it considers such listing necessary in the public interest.
A new regulation would define "public interest companies", and they would be required to list, Mr Khan said.
The BSEC is also seeking to shorten the IPO approval process by introducing an "extended audit" to cover a company's assets, land, machinery, receivables and liabilities in greater detail than a conventional statutory audit.
Under the proposed system, an issuer would submit its IPO application to the stock exchanges, with a copy to the BSEC. The exchanges would conduct the initial scrutiny and raise necessary queries with the issuer, while the commission would give the final approval.
Acknowledging the current weak investor confidence, Mr Khan said the regulator would not interfere in the normal movement of the capital market or seek to artificially support it.
"The market will run on its own strength," he said.
The commission would investigate unusual trading or price movements and take action if irregularities are detected, he said.
Mr Khan said the regulator's role was not to increase the market index or turnover, but to ensure a fair, transparent and orderly market and protect investors.
He said structural reforms, quality listings and modern market infrastructure were essential to restoring confidence among local and foreign investors.
The BSEC chief also said the board of the Central Counterparty Bangladesh Limited (CCBL) is expected to be reconstituted within a month, paving the way for the long-delayed launch of its operations as a clearing company. He said he expected the CCBL to become operational within a year and that it would strengthen risk management and automate clearing and settlement processes.
The regulator is also targeting the introduction of T+1 settlement by the end of this year. A roadmap has been prepared following discussions with the Dhaka Stock Exchange (DSE), the Chittagong Stock Exchange (CSE), the Central Depository Bangladesh Limited (CDBL) and foreign custodian banks.
Moreover, the securities regulator is looking to expand the bond market by reducing fees and encouraging issuers to list bonds on the main board.
Mr Khan said BRAC Bank was planning to issue a Tk 10-billion social bond on the condition that it would be listed on the DSE main board.
"We want every bond to be listed on the main board," he said.
He expressed optimism that a significant number of bonds will be listed on the main board over the next year, creating investment opportunities for mutual funds, merchant banks and other institutional investors.
Surprise inspections
The regulator will strengthen surveillance of brokerage houses through risk-based and surprise inspections rather than relying on penalties.
"Surprise inspection is very important. Both the DSE and we believe that surprise inspections should be conducted regularly, not after five years," Mr Khan said.
The regulator will also examine whether large orders or repeated transactions are being used to manipulate stock prices. Mr Khan said placing a large order by itself was not illegal, but a series of transactions aimed at influencing prices could constitute an offence.
DSE Chairman Mominul Islam said the market had long been considered "overly regulated," preventing it from developing according to its own dynamics. The exchange is working to introduce scrip netting and bring technological changes to its matching engine and order management system, he said. The DSE is also preparing to launch trading in open-ended mutual funds and upgrading its website to attract institutional and foreign investors.
DSE Managing Director Nuzhat Anwar said much remained to be done to improve governance among listed companies, adding that the DSE and the BSEC were working in coordination on investor protection, margin requirements, Consolidated Customer Accounts and IPOs.
DSE Director Richard D'Rozario stressed the need for stronger surveillance to detect irregularities at an early stage.
DSE Director Minhaz Mannan Emon said global economic uncertainty, including the oil market crisis, was affecting Bangladesh's capital market among other factors. He called for coordinated efforts among the regulator, exchanges and market participants to address the challenges facing the secondary market.
