Government Regulation on

The Security Market in

Bangladesh

Submitted to:
Prof. Dr. Serajul Hoque
Faculty of Business Studies
University of Dhaka
Department of Marketing
Submitted by:
Tazrin Mozumder Mou
Roll:41427029
Course Name : Financial Management
Date: 17.7.2016

Table of Contents
Contents
1.0 Introduction:..............................................................................................................................3
2.0 Discussion..................................................................................................................................3
I.

Description:.......................................................................................................................3

II.

Market Standard and Requirement:..................................................................................3

III.

The Securities and Exchange Ordinance, 1969................................................................4

A)

Issue of Capital:.............................................................................................................4

B)

Registration and regulation of stock exchanges............................................................4

C)

Regulation of issuers.....................................................................................................6

3.0 Implication in Financial Market:...........................................................................................7

4.0 Conclusion ............................................................................................................................8
5.0 Reference...............................................................................................................................8

1.0 Introduction:
2

In terms of finance, securities means Financing or investment instruments (some negotiable, others not)
bought and sold in financial markets, such as bonds, debentures, notes, options, shares (stocks), and
warrants
Securities market is a component of the wider financial market where securities can be bought and sold
between subjects of the economy, on the basis of demand and supply.
In Bangladesh the primary issues and secondary trading of equity securities of capital market take place
through two (02) stock exchanges-Dhaka Stock Exchange and Chittagong Stock Exchange. The
instruments in these exchanges are equity securities (shares), debentures and corporate bonds. The capital
market is regulated by Bangladesh Securities and Exchange Commission (BSEC).

2.0 Discussion
I.

Description:

Securities and Exchange Commission (SEC) performs the functions to regulate the capital market
intermediaries and issuance of capital and financial instruments by public limited companies. It was
established on June 8, 1993 under the Securities and Exchange Commission Act, 1993 as a capital market
regulator with a view to ensuring proper issuance of securities, protection of the interest of investors in
securities, development of the capital and securities markets, and regulation of the capital and securities
markets in Bangladesh. A 5 member commission headed by a Chairman has the overall responsibility to
administer securities legislation and the Commission is attached to the Ministry of Finance.
The mission of SEC is to protect the interests of securities investors, to develop and maintain fair,
transparent and efficient securities markets and to ensure proper issuance of securities and compliance
with securities laws. The main functions of SEC are:
a) Regulating the business of the Stock Exchanges or any other securities market.
b) Registering and regulating the business of stock-brokers, sub-brokers, share transfer agents,
merchant bankers and managers of issues, trustee of trust deeds, registrar of an issue,
underwriters, portfolio managers, investment advisers and other intermediaries in the securities
market.
c) Registering, monitoring and regulating of collective investment scheme including all forms of
mutual funds.
d) Monitoring and regulating all authorized self regulatory organizations in the securities market.
e) Prohibiting fraudulent and unfair trade practices in any securities market.
f) Promoting investors education and providing training for intermediaries of the securities market.
g) Prohibiting insider trading in securities.
h) Regulating the substantial acquisition of shares and take-over of companies.
i) Undertaking investigation and inspection, inquiries and audit of any issuer or dealer of securities,
the Stock Exchanges and intermediaries and any self regulatory organization in the securities
market.
j) Conducting research and publishing information.

II.

Market Standard and Requirement:

a) Disclosure Requirements by the Listed Companies

1. Yearly Audited Financial Statement within four months of the year end.
2. Half-yearly Un-audited financial statements within one month of the first half-year end.
3. rice Sensitive disclosures
b) Standards to follow in preparation of the accounts
1. International Accounting Standard (IAS)
2. International Standards for Auditing (ISA)
c) Corporate Governance
1. All the listed companies are required to adopt the Corporate Governance Guidelines
issued by SEC and required by Listing

III.

The Securities and Exchange Ordinance, 1969 :

A. Issue of capital:
1. Control over issue of capital:
No issuer, or no company incorporated in Bangladesh shall, except with the consent
of the Commission, make an issue of capital outside Bangladesh.

No issuer, or no company, whether incorporated in Bangladesh or not, shall, except

with the consent of the Commission,(a) Make an issue of capital in Bangladesh;
(b) Make in Bangladesh any public offer of securities for sale
(c) Renew or postpone the date of maturity or repayment of any security
maturing for payment in Bangladesh.
The Commission may, on an application made to it, make an order according
recognition to an issue of capital made or to be made outside Bangladesh.

2. Purchase of securities :
No person shall accept or give any consideration for any securities in respect of an issue of
capital made or proposed to be made in Bangladesh or elsewhere unless the consent or
recognition of the Commission has been accorded to such issue of capital.

B. Registration and regulation of stock exchanges :

1. No Stock Exchange to operate without registration :
No Stock Exchange shall operate or carry on its functions, and no person shall use or utilise,
for the purpose of any transaction or dealing in any security, the facilities or services of a
Stock Exchange, unless such Stock Exchange is registered under this Ordinance.
2. Eligibility for registration :
(1) Any Stock Exchange which fulfills such conditions or complies with such requirements
as may be prescribed to ensure fair dealings and to protect investors shall be eligible for
registration under this Ordinance.
(2) The conditions or requirements which may be prescribed for the purposes of sub-section
(1) may, among other matters, relate to(a) Qualifications for membership and admission, exclusion, suspension, expulsion and readmission of members thereinto or therefrom

(b) Constitution and powers of the governing body and the powers and duties of the office
bearers;
(c) Representation of the Commission on the governing body of a Stock Exchange or any of
its Committees;
(d) The manner in which business should be transacted including restrictions on the business
of the members;
(e) Memorandum and Articles of Association, rules, regulations and bye-laws of a Stock
Exchange; and
(f) The maintenance of accounts, including those of members, and their audit.
3. Registration:
(1) Any Stock Exchange which is eligible for registration under section 4 may, in such form
and manner as may be prescribed, apply to the Commission for registration.
(2) The Commission, if it is satisfied, after such inquiry and after obtaining such further
information as it may consider necessary,(i) That the Stock Exchange is eligible for registration; and
(ii) That it would be in the interest of the trade and also in the public interest to register the
Stock Exchange; may grant a certificate of registration to the Stock Exchange.
(3) No application for registration shall be refused except after giving the applicant an
opportunity of being heard.
4. Restriction on dealings in securities ;
(1) No person shall transact any business in securities on any Stock Exchange unless he is a
member thereof.
(2) No business shall be transacted on a Stock Exchange in a security, other than a
Government security or a bonus entitlement voucher, which is not listed on such Stock
Exchange: Provided that business of security which is de-listed or not listed may be
transacted in such manner as the Commission may direct.
(2) No person shall act as a jobber or dealer in a security listed on a Stock Exchange outside
such Stock Exchange:
(3) No person other than a member shall act as a broker or a 26[ jobber or dealer] for any
security not listed on a Stock Exchange: Provided that the prohibition in this sub-section
shall not apply to discounting of any security evidencing a loan.
5. Listing of securities :
(1) An issuer who intends to get any of his securities listed on a Stock Exchange shall submit
an application therefore, in the prescribed form to the Stock Exchange and submit a copy of
the application to the Commission. Listing of securities
(2) Upon receipt of an application under sub-section (1), the Stock Exchange may, if it is
satisfied after making such inquiry as it may consider necessary that the applicant fulfills the
conditions prescribed in this behalf, list the security for dealings on the Stock Exchange.
(3) Where a Stock Exchange refuses to list a security, the Commission may, either on petition
by the applicant made within the prescribed time or on its own motion, direct the Stock
Exchange to list the security.
(4) Where after the listing of a security, the Commission or Stock Exchange finds that the
application is deficient in any material respect or that the issuer has failed to comply with any
prescribed condition or requirement and that the continued listing of the security would not
be in the public interest, the Commission or, as the case may be, the Stock Exchange may, by
order, either require the issuer to correct the deficiency or comply with the prescribed
condition or requirement within the time specified in the order or revoke the listing.

(5) A listed security may be de-listed on application by the issuer to the Stock Exchange
which may deny the application or grant it on such conditions as appear necessary or
appropriate for the protection of investors.
(6) Where a Stock Exchange refuses to de-list a security, the Commission may, on petition by
the applicant made within the prescribed time, direct the Stock Exchange to de-list the
security.
(7) The Commission or a Stock Exchange may, if it considers it to be in the interest of trade
or in the public interest so to do, suspend, by order recording the reasons, trading in any listed
security.
(8) An order under sub-section (7) shall remain in force for a period of 27[ thirty] days which
the Commission or, as the case may be, the Stock Exchange may extend for further periods
not exceeding 28[ fifteen] days at any time.
(9) No application submitted under sub-section (1) shall be refused, and no listing shall be
revoked under sub-section (4), unless the issuer has been given an opportunity of being heard.
7. Compulsory listing of securities:
Where the Commission, having regard to the nature of, and the dealings in, any security, is of the
opinion that it is necessary or expedient in the public interest so to do, it may, after consulting
a Stock Exchange and giving the issuer of such security an opportunity of being heard, direct the
Stock Exchange to list the security.

C. Regulation of issuers:
1. Submission of returns:
(1) An issuer of a listed security shall furnish to the Stock Exchange, to the security holders
and to the Commission an annual report of its affairs and such statements and other
reports as may be prescribed.
(2) Without prejudice to the provisions of sub-section (1), an issuer of a listed security shall
furnish to the Commission such other documents, information or explanation relating to its
affairs as the Commission may, at any time, by order in writing, require.
2. Trading by directors, officers and principal share-holders:
(1) Where any director or officer of an issuer of a listed equity security or any person who is
directly or indirectly the beneficial owner of not less than ten per cent of such securities
makes any gain by the purchase and sale, or the sale and purchase, of any such security
within a period of less than six months, such director or officer or beneficial owner shall
make a report and tender the amount of such gain to the issuer:
Provided that nothing in this sub-section shall apply to a security acquired in good faith in
satisfaction of a debt previously contracted.
(2) Where a director, officer or beneficial owner fails or neglects to tender, or the issuer fails
to recover, any such gain as is mentioned in sub-section (1) within a period of six months
after its accrual, or within sixty days of a demand therefore, whichever is later, such gain
shall vest in the Commission which may recover the same as an arrear of land revenue.
3. Regulation of proxies:
Notwithstanding anything contained in the Companies Act, 1913 or in the Memorandum or
Articles of Association of the issuer of a listed security, the Commission may regulate the
solicitation of any proxy, consent or authorization pertaining to the securities of such issuer in
such manner as may be prescribed.

3.0 Implication in Financial Market:

Securities markets regulation is concerned with overseeing the circulation of information about
securities that are traded, monitoring the market for the abuse of information or financial
resources to manipulate market and prices and supervising the corporate governance of organised
markets.
The purpose of securities markets regulation is to promote an efficient and fair securities
market.The recent stock market debacle exposed the inadequacies in the stock market operations
and the prevailing policies and practices. The report prepared by ADB identified government
tutelage over the capital markets as the most critical problem holding back sector development
and constrains responsible institutions from carrying out their mandates effectively. Combined
with strong vested interest have resulted in entrenched status quo.
There is a general degree of convergence among the practitioners and market analysts about the
key problems facing the capital markets, which are:
Limited SEC capability in areas of regulation, surveillance, and enforcement
Limited financial stability oversight and policy coordination between SEC,
Bangladesh
Bank and the Ministry of Finance
Weak regulation, governance and operation
of stock exchanges
Small institutional investor and mutual fund industry: underdeveloped insurance industry
serving only 1%-2% of population; nascent mutual fund segment of the financial sector
Limited supply of bonds and equities
The key recommendations were:

Demutualization of stock exchanges

Enhanced coordination between regulators to enhance financial stability
Enhancing institutional investor demand and promote the mutual fund industry
Enhancing supply and demand of equities and bonds

4.0Conclusion:
With regard to the Markets in Financial Instruments Directive, the Securities and
Exchange Commission is responsible for the securities markets related competent
authority functions therein e.g. the prudential supervision of the Bangladesh securities
market.
7

The Security Exchange of Bangladesh follows the rules and regulation according to the
Security Exchange Ordinance of 1969. The regulatory system of Bangladesh is in a
process of change with the inclusion of new rules on various types of capital market
institutions. With new amendments and fault corrections the security market can be a
more reliable to invest for the interested investors. Some companies may try to take
advantage of the security market and can collect money from the market then call for
bankruptcy for their fraudulent schemes. This sort of activities needs to be prevented by
the SEC. For this, the Securities and Exchange Commission Ordinance, 1969 and the
Securities and Exchange Commission Act 1993 need amendments to make the SEC
stronger.

5.1 Reference:
a) Bangladesh Security Exchange Commission : ( http://www.secbd.org)
b) The Securities and Exchange Ordinance, 1969
c) Bangladesh Bank Website : (www.bb.org.bd)
d) Financial market Developments and challenges In Bangladesh : Dr. Ahsan H.
Mansur, Policy Research Institute of Bangladesh

e) Wikipedia (en.wikipedia.org)
f) Investopedia : (www. Investopedia.com)