BO accounts: Misleading numbers

Dhaka,  Fri,  21 July 2017
Published : 12 Mar 2017, 21:17:22
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BO accounts: Misleading numbers

Shamsul Huq Zahid
The current state of the country's stock market can be understood well from the level of participation of beneficiary owner (BO) account holders in daily trading. Barring occasional buoyancy, the participation has been dismally low since the collapse of the market in December 2010.

A newspaper report quoting the data available with the Central Depository Bangladesh Limited (CDBL) said a little over 10 per cent of about 3.0 million 'active' BO accounts took part in trading in the Dhaka Stock Exchange (DSE) in the month of February last. And less than half of the participants traded shares worth above Tk 0.1 million each during that month.

Naturally, such a small participation of active BO accounts in regular trading on the bourses' floor prompts one to raise one obvious question:  why are the remaining BO accounts kept active?

In fact, most of these accounts are ghost ones, generally used for subscribing initial primary offerings (IPOs). Many such accounts have met natural death in recent years due to non-payment of annual renewal fees by the owners, fake or otherwise.

Yet many people are still operating thousands of fake BO accounts to subscribe IPOs.  Such investment pays good return within a short period.

In fact, many investors, who sustained losses in the 2010 crash, long ago stopped taking part in trading on secondary market and have been active only in subscribing the IPOs. There is no scope of losing money in it. Rather there are chances of getting three to fourfold return on investment within a very short time.  Pensioners and unemployed people are generally involved with this particular type of investment. It is tiresome yet a rewarding investment process.

With the participation of such a small number of investors and low volume of transactions, it is hard to expect buoyancy from a market.

Yet, surprisingly, on occasions market starts showing unusual buoyancy for no reasons. The indices start going up with market turnover soaring. But the uptrend cannot be sustained because of the fact that the market turnaround is an unnatural and manipulated one. After the collapse of the market, there were a number of attempts to up the market manipulatively. This, in fact, has caused more harm than good to the market. The process of gaining market stability through normal process has been interrupted.

An identical attempt was made some weeks ago. That too met the obvious outcome. After a brief rally, the market has gone back to a low-key participation of investors in daily transactions.

Against this backdrop, Finance Minister AMA Muhith the other day suggested the companies to mobilise resources from the stock market instead of taking funds from other sources.

As far as investors are concerned, any company wanting to secure funds from the stock market through floatation of IPOs or through book building method would get a positive response. In the case of IPOs, the response might even go beyond expectation. Here, the use of fake BO accounts plays a major role.

But the fact remains that not many companies, both local and foreign, are found that much interested to come to the stock market. However, there was a time when a large number of companies entered the market and raised funds for themselves. The eligibility criteria and scrutiny on the part of the securities regulator were more or less relaxed. A good number of companies listed during the middle part of the 1990s took advantage of the lax scrutiny and later vanished with investors' money.

Even a number of companies had cheated investors between 2008 and 2010 taking recourse to so-called 'direct listing' and 'book building'. All these happened because the securities regulator was found to be too indulgent to this kind of foul play.

However, the situation has changed now. The regulator has introduced the Public Issue Rules, which is more or less well-crafted. If the regulator fully sticks to the rules, companies with weak fundamentals would find it difficult to get listed on the bourses. Yet the regulator at times is hoodwinked by companies having questionable fundamentals.

There is no denying that the number of listed companies with strong fundamentals is very small. Many local large companies are not coming to stock market for they are not willing to give up control of the owning families. They tend to consider the acts of sharing company information and profits with 'outsiders' an unnecessary botheration.

The issue concerning a good number of large multinationals' deliberate avoidance of the stock market does very often come to the fore. Some people even suggest applying coercion on foreign companies to become listed.

The government, however, may offer some attractive corporate tax rate rebate for MNCs entering the stock market. It may also ask these companies to raise their paid-up capital in commensurate with their business turnover and annual profit. Most non-listed MNCs have a very small capital base. A good number of them earn profits that are many times more than their respective capital bases. The companies concerned might opt for going to the stock market to pay for the raised amount of capital.

The entry of companies, local and foreign, having strong fundamentals is necessary to raise depth of the market. This might help restore the confidence of genuine investors in the market.

zahidmar10@gmail.com

 
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