Stock market stimulus package announced

November 24, 2011

The Security and Exchange Commission on Wednesday announced the stock market stimulus package which included some immediate steps to the relief  of mostly institutional inventors and pledges for some special schemes for non-institutional investors.
The commission chair, M Khairul Hossain, in the afternoon announced a number of steps including relaxation of the capital market exposure calculation system for banks and extension to the deadline for adjusting single borrower exposure limit for banks up to December 31, 2013 to stabilise the stock market and to protect the right of the small-scale investors.
The stimulus package contained short-, mid- and long-term steps from the commission and other regulators. The short-term steps provision for the exclusion of bank’s investments in subsidiary merchant banks and brokerage houses from the capital market exposure calculation. Long-term equity investments of banks would also be excluded from such calculation.
The commission said that banks would be allowed to practice net-off system instead of the existing net loss system in bank’s loss provisioning of stocks.
The short-term steps also include allowing merchant banks to collect 49 per cent of their capital from sources other than parent companies.
The steps provision for withdrawal of 10 per cent capital gains tax on foreign firms and non-resident Bangladeshis, expediting the reimbursement of commissions for foreign brokerage houses, 30 per cent mandatory stake for sponsors/directors and immediate investments of life insurance funds.
The mid-term measures, planned to be implemented in three months, include the opening of investment advisory services and equity research publications to facilitate investors, academics and policy-makers.
A process of raising capital for merchant banks and subsidiary companies and a corporate governance guideline would be finalised as part of the mid-term steps.
The long-term steps, planned to be implemented in four to six months, include formulation of a financial reporting act to ensure the quality of auditing and accounting disclosure of listed companies.
Such steps also provision for the strengthening of the Insider Trading Rules, update of the Investor Protection Rules and the demutualisation of the stock exchanges.
The commission would strengthen its surveillance and monitoring system and make the mutual fund sector more attractive in the long term.
The commission chairman also announced to form a six-member committee to recommend a special scheme in two months for small-scale investors who had suffered heavy losses in the depression that spanned 11 months.
The committee, headed by the Investment Corporation of Bangladesh managing director, Mohammad Fayekuzzaman, also includes one representative each of the Securities and Exchange Commission and the banking division, managing director of the Central Depository of Bangladesh Ltd and chief executive officers of the Dhaka and the Chittagong Stock Exchange.
‘The announcement appears to be positive. It will surely give a breathing space to institutional investors, especially banks,’ Mahmood Osman Imam, a professor of finance in Dhaka University, said.
When his attention was called to the issue of reduction of the cash reserve requirement and the statutory liquidity ratio, which was in the SEC proposal but was not announced as part of the stimulus package, Osman said, ‘The government might consider the macro economic impact of the matter as such a reduction could increase inflation.’
The Dhaka Stock Exchange president, Shakil Rizvi, in his reaction to the package, said that the package would have a positive impact on the market.
The benchmark general index of the Dhaka Stock Exchange, before the announcement of the package on Wednesday, meanwhile, lost 4 per cent, or  224.30 points, to close the day at 5,372.65 points.
Market operators said that speculations about the inclusion of reduction of the cash reserve requirement and the statutory liquidity ratio among investors and profit-taking sell-offs pulled the index down on the day.

-With New Age input

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