Demutualisation Twin bourses on course to adopt new models

Reforms will bring transparency and accountability to markets

Twin bourses on course to adopt new models

The Bangladesh Securities and Exchange Commission (BSEC) yesterday approved the demutualisation schemes, an act which would transform the two bourses from their current non-profit, co-operative state into profit-oriented entities.
“It’s a milestone in the history of Bangladesh’s stockmarket,” BSEC said after giving approval to the schemes prepared by the Dhaka and Chittagong stock exchanges. “It’s not only a way of separating the bourses’ management from ownership; it will also bring transparency and accountability to the market.”
At present, the two bourses are collectively owned and run by the brokers who trade on them.
Since the objective of a stock exchange and those of the brokers trading on them are different, the vesting of ownership and managerial rights with the brokers can often lead to a conflict of interests. In most cases, it is the interest of the brokers that is preserved over the interest of the wider investing public.
Demutualisation, which would convert the bourses from mutual organisations to corporate entities owned by shareholders, would check this as it would separate the ownership and trading rights of the brokers.
The stockmarket regulator, however, made a few changes to the demutualisation schemes proposed by the Dhaka and Chittagong stock exchanges, with the major one being the cutback in the board size.

The bourses proposed a 15-member board, but the BSEC sized it down to 13.
The 13-member board would consist of seven independent directors, five shareholder-directors, including one strategic investor, and the chief executive officer, who would have voting rights.
The independent directors will be selected based on the ‘fit and pro-
per’ criteria mentioned in the demutualisation scheme, which will be made public in seven days.
The tenure of each director and the chief executive officer will be for three years.
Both the stock exchanges will have to create a post—chief regulatory officer—to oversee the regulatory matters.
Faruq Ahmad Siddiqi, a former chairman of BSEC, said the demutualisation will bring the expected results only if the existing stock exchange members mean it and act in line.
“Otherwise, it will not be effective and not bring any good results to the market.”
Over the next 30 days, the stock exchanges would adopt the approved schemes by modifying their respective Memorandum and Articles of Association at a general meeting.
At the general meeting, the bourses will also reshuffle their existing boards to match the board size in the approved schemes.
During the 30-day window, the dematerialised or electronic shares will be allotted to the stock exchange members, with 60 percent of the shares transferred to a block account to be kept for trading right entitlement certificate (TREC) holders, strategic investors and individuals.
Primary shareholders, who will have 40 percent stakes, of the bourses will also get their TREC within this period.
The newly-formed boards will hold their first meetings within 90 days from the date of demutualisation.

Source: The Daily Star


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