As per BSEC’s decision, sponsors and directors holding shares of Z category companies will not be able to sell, transfer, hand over and pledge them
The Bangladesh Securities and Exchange Commission (BSEC) has moved to regulate junk stocks or Z category companies for bringing positive changes in those companies’ commercial operations and good governance.
The stock market regulator took some decisions to work on the junk stocks at a commission meeting, presided by its Chairman Prof Shibli Rubayat Ul Islam on Thursday.
As per BSEC’s decision, sponsors and directors holding shares of Z category companies will not be able to sell, transfer, hand over and/or pledge them.
The companies, which have been in the Z category for two years, will have to reform their existing board of directors within the next 45 working days.
If they fail to do so, those sponsors and directors will not remain as directors in those companies or in any other listed companies and capital market intermediaries.
The country’s prime bourse, Dhaka Stock Exchange, now trades 53 junk stocks.
The stock market regulator will appoint special auditors and observers to ensure compliance and good governance.
After the reformed board is put in place, if they too fail to improve the business within four consecutive years, then the stock exchanges will delist the companies.
As per the BSEC decision, electronic voting, or e-voting, is mandatory in annual general meetings (AGMs) and extraordinary general meetings (EGMs) for Z category companies as a measure toward improving their overall situation and ensuring good governance.
Meanwhile, the stock market also decided that trading settlements for the companies in the Z category would be T+3 instead of T+9 at stock exchanges.
Amend conditions for Z category companies
At the meeting, the securities regulator also decided to amend the conditions for Z category companies.
The shares of a company will be traded under Z category if it fails to distribute cash dividend or hold AGM in two years.
A company will be transferred to the Z category if its production remains closed for six months or more.
The BSEC said that a company having net operating loss or negative cash flow from operations for two consecutive years would also be transferred into the Z category.
A listed company will also be transferred into the Z category if its negative retained earnings crosses its paid-up capital.
The BSEC also said it would issue a new notification based on which the stock exchanges would amend their related regulations to treat and handle Z category companies.
Recently, share prices in junk companies or Z category companies have been rising abnormally despite the absence of price sensitive information and growth in earnings, posing a threat to the stability of the capital market.
Manipulators usually target small cap stocks as their prices can be easily manipulated and the demand for their shares can be artificially inflated.
Such misconduct in the capital market frequently leads to general investors losing money as they gamble in junk shares, despite warnings from regulators and financial experts to not pour funds into the capital market without proper knowledge and information.
Previously, on July 18, 2018, the DSE also delisted Rahima Food Limited and Modern Dying and Screen Printing Limited, as the share prices of the companies had continued to surge abnormally, despite the companies having long been out of operation.
At the meeting, the BSEC also decided to rename the Surveillance Department as "Market Surveillance and Intelligence" for collecting confidential information on various activities of the stock market.