British investment firm sues securities regulator for flouting mutual fund rules
The High Court (HC) sought explanation from the securities regulator after a British investment firm challenged a decision of the Bangladesh Securities and Exchange Commission (BSEC) that allowed close-end mutual funds’ extension through flouting rules.
The City of London Investment Management Company (CLIM) sued the BSEC as the regulator had issued a directive in September, last year allowing the country’s asset management firms to extend tenures of closed-end mutual funds without unitholders approval.
Among many other funds, the BSEC directive enabled the EBL First Mutual Fund, a 10-year closed-end fund, getting an extension without their unitholders’ approval, which is mandatory under the Mutual Fund Rules, 2001.
CLIM is a unitholder of the EBL First Mutual Fund.
The HC bench of Justice Moyeenul Islam Chowdhury and Justice Khandaker Diliruzzaman passed an order on October 21 asking BSEC why their latest extension decision would not be unlawful.
The HC order also asked why the respondents would not be ordered to liquidate the closed-end fund and distribute all the proceeds among unitholders.
The Investment Corporation of Bangladesh (ICB), as the trustee of the fund, and Bangladesh Race Management Private Company Ltd, as the asset manager of the fund, were also made respondents.
BSEC and other respondents were asked to submit their replies before the court by November 18.
The HC also ordered the asset manager not to take any asset management fee until the ruling was disposed off.
Asked, BSEC spokesperson Saifur Rahman yesterday told Dhaka Tribune the commission was yet to respond to HC order.
“Our legal department is working on the issue. The commission gave the go-ahead for the tenure extension following a government order,” he said.
Last month, the British firm in a letter to the BSEC said, “The BSEC, in our view, may have done irreparable harm to the mutual fund industry by acquiescing with closed-end mutual funds that are attempting to extend their lives without unitholders’ approval”.
On June 18, 2018, a letter signed by then Finance Minister AMA Muhith was sent to BSEC asking the commission authorities to take necessary measures to extend the time limit of mutual funds.
Muhith’s letter also said that the winding up of closed-end mutual funds could affect the small-scale investors and they might not get fair value.
After the government directive, the commission extended the tenures of 30 close-end mutual funds which are scheduled to mature by 2023.
According to the Bangladesh Securities and Exchange Commission (Mutual Fund) Rules 2001, (rule 50B) the extension of mutual fund is subject to consent from owners of 75% unitholders.