The Bangladesh Securities and Exchange Commission (BSEC) is the regulator for the capital markets and the securities industry in Bangladesh. Established in 1993 under the Securities and Exchange Commission Act, BSEC is responsible for supervising stock exchanges, regulating securities markets, and protecting the interests of investors in Bangladesh.
Some of the major roles and responsibilities of BSEC include regulating the business activities of stock exchanges, asset management companies, merchant banks, brokers, dealers and other market intermediaries. It issues licenses for market participants and frames regulations for the orderly functioning of the markets. BSEC also regulates substantial acquisitions of shares and takeover of companies. It conducts investigations into matters related to insider trading and fraudulent activities in the securities markets.
Registration and Regulation of Market Participants
Brokerage Firms
One of the core functions of BSEC is to regulate brokerage firms in Bangladesh. All companies providing stock brokerage services need to register with BSEC and obtain a license to carry out activities related to securities trading and broking. BSEC has laid down eligibility criteria relating to minimum capital requirements, infrastructure, compliance capabilities etc. for grant of broker license. It periodically inspects their books and records to ensure compliance with regulations. Over 250 brokerage firms are currently registered in Bangladesh.
Merchant Banks
Merchant banks specialize in large scale project financing, underwriting of IPOs, advising on mergers & acquisitions etc. They need to obtain a certificate of registration from BSEC for providing merchant banking services. BSEC regulations cover their obligations relating to disclosure, due diligence, underwriting, financials, reporting requirements etc. There are around 30 registered merchant banks in Bangladesh at present.
Asset/Fund Managers
Asset management companies manage the funds of investors by making investments in various asset classes and financial instruments. They are involved in launching mutual funds and other portfolio management services. BSEC grants them certificate of registration subject to fulfilling minimum capital, infrastructure and other eligibility requirements. It oversees their activities to ensure compliance. Around 60 asset management firms operate in Bangladesh currently.
Stock Exchanges
The stock exchanges of Bangladesh namely Dhaka Stock Exchange and Chittagong Stock Exchange are regulated by BSEC which has granted them licenses. BSEC approves their listing regulations and bye-laws governing trading, membership, disclosure, listing of securities etc. It monitors their functioning to promote fairness, efficiency and transparency in the stock markets.
Credit Rating Agencies
BSEC has regulations in place for registration and functioning of credit rating agencies that assign credit ratings to debt instruments and corporations. Credit rating agencies have to maintain high standards of integrity and fairness in their rating activities. BSEC guidelines cover their capital requirements, rating methodologies, rating criteria, disclosures, reporting etc. There are 6 registered credit rating agencies in Bangladesh.
Regulation of Securities Listing
BSEC has put in place disclosure requirements and procedures for issuers seeking to list their securities on the stock exchanges of Bangladesh.
IPO Approvals
Companies planning an initial public offering (IPO) of shares have to file a draft prospectus with BSEC. The prospectus provides detailed disclosures about the issuer company, offering details, risk factors etc. BSEC reviews the draft offer documents and approves or rejects the IPO application based on qualitative evaluation parameters.
Continuous Listing Requirements
Listed companies need to make timely disclosures to investors regarding financial results, corporate actions, material events etc. through stock exchange notifications. They have to submit annual, half-yearly and quarterly reports as per BSEC stipulations. BSEC regulations also cover corporate governance standards for listed companies relating to board structure, independent directors, audit committee etc. to protect investor interests.
Delisting Guidelines
BSEC has put in place delisting regulations that allow voluntary, compulsory or regulatory delisting of companies that no longer meet the listing requirements. Companies can voluntary delist with prior shareholder approval. Compulsory delisting can happen due to failure to comply with listing rules. BSEC can also order delisting in case of a company’s failure to protect investor interests.
Investor Protection and Education
BSEC as the capital market regulator plays an important role in safeguarding investor interests and generating awareness among them.
Investor Protection Fund (IPF)
The IPF operates as an insurance scheme to compensate investors who suffer monetary losses due to failure of listed companies or licensed intermediaries such as brokerage firms. It creates confidence among investors regarding the safety of their investments. The IPF is administered as per BSEC guidelines.
Investor Complaint Cell
BSEC has an online investor complaint filing and redressal mechanism in place. Investors can file complaints for grievances against listed companies or intermediaries and track their status online. BSEC ensures timely resolution of these complaints.
Investor Education
BSEC takes initiatives to educate investors about capital market functioning, laws, rules, risks, rights and responsibilities through seminars, website content, social media, print and electronic media. This results in more informed investment decision making.
Prohibition of Market Manipulation Practices
BSEC strictly prohibits manipulative activities that distort normal price discovery and fairness in the capital markets.
Insider Trading
Trading in securities by insiders based on access to unpublished price sensitive information is prohibited under BSEC Insider Trading regulations. Company insiders and their connected persons who indulge in insider trading activities are subject to severe penalties and imprisonment.
Market Rigging
BSEC keeps a close watch on abnormal price and volume movements in stocks to prevent market rigging practices. Creation of artificial stock prices through techniques like wash sales, synchronized trading, circular trading etc. aimed at misleading investors is punishable.
Rumor Mongering
Circulating false or misleading information and rumors that affect investor decision making and damage market integrity attracts strict action by BSEC. Such acts of market abuse erode investor confidence.
Pump and Dump Schemes
BSEC comes down heavily on pump and dump like market manipulation activities. These involve operators artificially boosting a stock’s price through false news, tips, paid promotions etc. and then dumping their holdings to profit from the price rise.
Spoofing and Algorithmic Manipulation
With technological progress, market manipulation through automated trading systems and algorithms is a challenge. BSEC regulations cover prohibition of strategies like spoofing wherein large orders are placed to give false impressions and cancelled later. Algorithm gaming is also under the radar.
Monitoring and Enforcement Actions
Robust surveillance and enforcement mechanisms have been instituted by BSEC to detect violations of securities laws and take stern action.
Integrated Surveillance System
BSEC uses an integrated market surveillance system that employs latest technology to monitor and analyze all trading activity. Any abnormal patterns get flagged for closer scrutiny and investigation. The system helps curb unfair trade practices.
Inspection and Audits
BSEC carries out regular inspections and snap audits of all regulated intermediaries like brokerage firms, merchant banks, mutual funds etc. These help verify compliance with regulations for investor protection. Corrective measures get initiated in case of deviations.
Enquiry and Adjudication
BSEC initiates enquiries and adjudication proceedings in case of suspected regulatory violations. The accused entities get adequate opportunities to present evidence and defend themselves. Penalties and bans can be imposed on those found guilty to prevent future infractions.
Prosecution
BSEC can prosecute repeat offenders who commit serious offenses before special courts as per Securities Laws. These can result in substantial monetary penalties and imprisonment acting as deterrents. Several such prosecutions have happened in the past for insider trading, market manipulation etc. sending strong signals.
Challenges and Future Outlook
As Bangladesh capital markets continue evolving, BSEC faces several challenges in regulating them as well as opportunities to facilitate their growth.
Technology Adoption
BSEC needs to promote usage of cutting-edge technology by market infrastructure institutions and participants. This includes electronic trading systems, Blockchain based solutions, algorithmic trading, robo-advisory, online account opening and KYC etc. Fintech integration can enhance efficiency, inclusion and transparency.
Global Integration
Participation in global regulatory platforms is required to adopt international best practices and cooperate on surveillance. Initiatives like cross-border listing partnerships with foreign exchanges provide Bangladeshi firms access to deeper capital pools. Offshore fund managers investing in Bangladesh also need adequate policy support.
New Products
For further modernizing capital markets, BSEC needs to facilitate launch of innovative products like derivatives, commodities futures, municipal bonds, REITs etc. Rules and risk management systems have to be developed for such products. Investor education is also essential.
Capacity Development
BSEC has to continuously upgrade its organizational capabilities and human resources skills to fulfill challenging regulatory mandates in dynamic markets. Technology expertise and data analytics capabilities also need strengthening through recruitment and training.
Corporate Governance
As the CCG regulator, BSEC has to spearhead adoption of corporate governance best practices by listed firms and intermediaries. Regulations regarding independent directors, voluntary audit, related party transactions etc. require more clarity and rigor. Stewardship code can also be introduced for institutional investors.
Conclusion:
In conclusion, BSEC faces exciting opportunities and daunting challenges in regulating Bangladesh’s capital markets. With the right vision and strategies, BSEC can pursue its statutory mission of fostering healthy growth of securities markets and securing the interests of investors. Going forward, good governance of BSEC itself will be vital for it to rise up to new regulatory demands. BSEC needs to follow global best practices regarding accountability, transparency and independence in its functioning to earn trust of all stakeholders. With a consultative approach that takes markets and industry along, BSEC can play a pivotal role in steering Bangladesh towards its economic and financial sector growth ambitions in the coming decade.
