Most investors tend to be guided by rumours and speculation and they want to be rich overnight.
The problem with regulatory institutions in Bangladesh has been that they do not or cannot carry out their assigned roles either because they are run by the wrong people (selected under political considerations) or because of interferences from powerful quarters. This particular problem as of late has become more acute and has contributed greatly to the malfunctioning of important national institutions. The institutions overseeing the capital market activities are not immune to such developments.
It has been relatively quiet in the country’s stock market front since its collapse in the final month of 2010 barring occasional flare ups that many tend to believe is the handiwork of the smalltime manipulators.
Following the collapse of the market, for the second time in its history, the securities regulator had put into effect a number of so-called reforms and the government made way for demutualizing the country’s bourses. All these, according to policymakers, were designed to bring back investor confidence and inject the much-needed buoyancy into the market.
Much of the investment and trade activities, these days, revolve around newer issues. The investors, if one is willing to consider them so, until recently showed keen interest in subscribing to the new initial public offerings (IPOs). Their interest too, it seems, has been waning as of late.
Compared to that of many countries in the South and Southeast Asia, Bangladesh stock market is relatively small and until now has not been able to attract any notable amount of foreign portfolio investment.
A good number of domestic and multinational companies have been offering attractive dividends year after year. However, the entry of long term investors to make use of them has been very insignificant. The size of what market pundits describe as the “informed class of investors” has always been very small.
Most investors tend to be guided by rumours and speculation and they want to be rich overnight. This particular section of investors demonstrates little appetite for stocks that offer attractive dividends at the end of the year. Their greed for getting an unusually higher rate of return from investment in stocks reaches to a limitless proportion when a bubble builds up in the market.
This greed has made them easy prey for the manipulators in 1996 and 2010. After the 1996 debacle, it was widely believed that the greedy investors had learnt their lesson and they would not commit the same mistake again. Alas, this was not to be as the investors succumbed to manipulations which were not as crude as in 1996.
In the latest stock scam, the manipulators proved to be more sophisticated than before as they took advantage of the lacunae in the securities rules, regulatory weaknesses and a section of financial institutions’ over-zealous investment in stock market.
There is no denying that the situation in the Bangladesh stock market would have been altogether different from that of now had it not gone through two major collapses. The market would have been more mature and stable with investments from an increased number of ‘informed’ investors. Also, the market could have attracted a larger number of foreign portfolio investors.
The 1996 scam and the lack of a serious effort to punish those involved in it have caused almost irreparable damage to the Bangladesh stock market. The impunity has encouraged some people to commit the second crime after a gap of 14 years. Had the government duly punished the 1996 market manipulators, the second scam might not have happened.
However, the government, in the face of strong criticism from different quarters, has constituted a special tribunal to try the capital market-related cases in particular recently. This is a good move as the normal courts usually do not have time and interest to dispose of such cases. Case after case has piled up in these courts over the years because of the delay in disposing them. At least the tribunal would be able to take up the cases of serious and urgent nature.
The tribunal has already sentenced a former employee of a merchant bank to spend two years in prison for luring unsuspecting investors to invest in different stocks through social networking. He reportedly earned a substantial amount as consultancy fees from the investors when the market was in its highs in 2010.
The tribunal has also started the trial of 15 cases instituted against stockbrokers, companies and individuals by the securities regulator in connection with the 1996 stock market scam.
The immediate past president of the Dhaka Stock Exchange (DSE) was one of the accused in one of those cases and he was in the dock recently. A few more people, who were allegedly involved in the market manipulation in 1996, are likely to be in the special tribunal dock. However, the popular perception is that these people will get away with their crimes because of their connection to high places. One would have to wait for some more time to see how things unfold.
The writer is a senior journalist. He can be reached at zahidmar10@gmail.com
