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Dhaka Tribune

JS passes demutualisation bill 2013

Update : 30 Apr 2013, 03:20 AM

Parliament yesterday passed the much-awaited Demutualisation Bill-2013 to bring more transparency in the country’s twin stock exchanges.

The house enacted the law by vote in absence of the main opposition Bangladesh Nationalist Party as Finance Minister AMA Muhith proposed its passage.

The bill gives out a positive signal to investors and other stakeholders that the excessive control enjoyed by brokers over the stock markets would end.

Passing of the demutualisation law has been welcomed by the stakeholders saying the law would bring more transparency in capital markets, leading to a higher degree of trust among the investors.

At present, the owners and managers of the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE) enjoy the right to trade the security issues.

The law requires the stock exchanges to be demutualised within 90 days and the Bangladesh Securities and Exchange Commission (BSEC) will approve the demutualisation scheme within next 60 days of its promulgation.

As per the bill, the independent director will hold the post of chairmen of the DSE and CSE. The stock exchanges would be operated by independent directors, owners and strategic investors.

After the demutualisation of the stock exchanges, majority of the board directors will be selected from independent directors. The bourses will also be able to raise funds from the market through initial public offering. The stock exchanges can also sell shares to strategic investors.

The BSEC will formulate a guideline for the appointment of independent directors. The aspirant independent directors with required qualification will have to apply to the BSEC for appointment.

Presently, the country’s twin stock exchanges are operating as non-profit companies with a mutualised structure where the members have ownership as well as trading rights.

This structure creates conflict of interest as members predominantly control the affairs of the stock exchange which results in lack of transparency in the operations and compromises investors’ interest.

DSE senior vice president Ahmed Rashid welcomed the law and said that it would bring more transparency in stock markets which would lead to a higher degree of trust among the investors.

“This is the beginning of a new era for country’s stock markets but the results will be visible in short period of time,” he said.

An official of BSEC said that the law provides a framework for the corporatisation and integration of the stock exchanges.

“The most significant benefit is that the supervision and enforcement in stock exchanges will not be in the hands of the brokers. It will also assist in expansion of the market outreach, resulting in larger number of investors, improved liquidity and better price discovery,” he said.

“Besides, a demutualised stock exchange will be in a better position to attract international strategic partners and good quality issuers.”

Bangladesh was among the few growing markets lacking demutualisation as almost all stock exchanges worldwide operate in a demutualised set up.

Earlier, the bill titled “The Exchanges (Demutualisation) Act-2013' was placed in the parliament on March 03 last and on the day, it was sent to relevant committee for conducting necessary scrutiny.

On September 27, 2012, the BSEC approved a draft of the law as per preparation of assisting the government to enact a law in parliament.

After the stock market debacle in January 2011, market experts were advocating for demutualisation of the stock exchanges to ensure greater transparency and accountability.

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