Role of Regulator in Capital Market

by Md. Rezaya Rabbi
April 20, 2011

http://www.weeklyblitz.net/1390/role-of-regulator-in-capital-market

After publishing the investigation report on share market crash, everybody knows more or less about our regulator of capital market. In 1996 when market was crashed, expert blamed weak regulation, absence of central depository, electronic format of shares etc. Today our capital market have strong regulation, central depository, demote share but what is the cause of 2010 crash which is more worse than the previous. It is not the system rather the people who run the system are responsible for the share market debacle. New laws and regulation have been formed, technological improvement has brought down but the instinctive behavior of our regulator has not been changed. In our market we have achieved many quantitative improvements like improved number of listed companies, investor, trader, brokerage house etc but the not much qualitative improvements. It is said that, compared to other Asian countries our capital market are lag behind several decades. Our market is an infant market compared to others. It is a market of three corporate bond, non-tradable debenture, less than 300 active listed companies, no derivative instrument and no electronic fund transfer in buy-sell. Our capital market needs some qualitative improvements otherwise an efficient and fair capital market will be a day dream. Lets look at the present activities of our regulator. SEC and DSE are not still decided whether to list or not MJL and MI cement. When these two companies got permission from SEC and DSE for issuing IPO, where were there laws?

Doesn't this prove that when our regulators take decision they do not consider afterward situation. In a word they are playing with people's money. Thousands of investor are suffering from their decision. What is fault of IPO investor? In my previous writing i told that it is only SEC, Issue manager, Institutional investor and Issues who are responsible for this situation. If they do not want to list those two company, clearly they should refuse them or order them to refund the money with interest within one or two weeks. Another point is that, in case of unusual price hike of Z Category Company, our regulator's response starts after many days of price increase. Suppose just before 15 days ago share price of ALLTEX was tk 190 and now it is more than tk 350. Didn't they see it? DSE formed an investigation committee and halted trading of shares after several day price increase. This time lag is enough to provide facility to manipulator. Couldn't they start it earlier? Not only ALLTEX, many other Z category shares are in the same position. Why they wait for 15 to 20 days to take initiative is mysterious. Empowerment of regulatory institution is another aspect. SEC is the main regulatory body where DSE and CDBL works under the supervision of SEC. DSE and CDBL should me more empowered. Currently CDBL has no regulatory power and does not carry out any investigation. As CDBL has expertise and expert in depository related issue they should be allowed to conduct investigation on settlement and unusual trading related issue with DSE. Another point is that SEC should focus on improving quality of credit rating report. Some companies rating is dubious. Providing artificial rating report, companies may get permission for right issuance which will have ultimate impact on investor. SEC should be remembered that there are thousands of techniques of manipulation to increase company's credit rating.

Final rating comes from the judgement and discretion of rating company board and there is another chance of manipulation. How dishonesty and greed of some personnel of regulator can have impact on overall market we have seen that. Whatever we do, we have to be honest first. It is only dishonesty and greed of regulator and market player which is responsible for the current market situation. After the tsunami in our capital market, all regulatory body should be more proactive. If we don't take lessons from the present, we have to suffer badly in near future.

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