Manipulation continues despite surveillance

A common scenario in the domestic stock market is that poorly performing stocks become the main winners, regardless of how stock indices react.

For example, shares of some companies that have suffered losses for more than a decade and are struggling to give their investors even a penny have doubled or more in the past three months, even in middle of a bear market.

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Interestingly, the issuers repeatedly insisted that there was no reason behind their abnormal price rise, but despite everything, their shares continued to soar.

However, stock values ​​normally fall after the price manipulation honeymoon ends and investors in general become the ultimate victim, market analysts say.

Yet general investors are rushing behind manipulators in search of overnight profits, they said, adding that this trend helps manipulators offload their overvalued stocks to general investors.

From this perspective, market analysts are questioning the effectiveness of the high-cost monitoring software used by the Bangladesh Securities and Exchange Commission (BSEC).

The manipulation of several stocks has been going on for a long time, but what did the software do to stop it and were the measures effective or is the market not being properly monitored?

The software was launched amid much cries that it would be effective in stopping stock manipulation in its early stages, but such actions have never been seen, said Faruq Ahmad Siddiqi, former chairman of the BSEC.

In many cases, small business stocks and junk stocks rose multiple times due to manipulation, but no action was taken at first, he told the Daily Star.

Commissions of inquiry have sometimes even been formed, but their conclusions have not been made public in many cases.

And even when the BSEC imposed fines on some manipulators, it turned out to be a slap on the wrist given their offence, he added.

For example, the stock market regulator recently imposed a fine of Tk 5.25 crore on Abul Khayer Hiru and his associates for their realized and unrealized gains of more than Tk 68 crore resulting from the manipulation of the shares of the NRB Commercial Bank and Fortune shoes, according to BSEC enforcement decision.

“When an offender does not face adequate consequences, they feel more encouraged to engage in manipulation,” the former BSEC chairman said, adding that the regulator should look into the possibility of prosecuting him. criminal.

The United States Securities and Exchange Commission announced last June that it had found some sixteen people participating in a stock manipulation scheme that generated more than $35 million in illicit profits. So, he decided to fine them more than $75 million collectively, according to his website.

Also, major manipulators can be banned from trading altogether, which is common practice around the world, Siddiqi said.

“The manipulation must be stopped by any means necessary,” he added.

A senior official at an asset management firm said the image of the Bangladesh stock market is already mixed with the word manipulation, which is not a good sign for the long-term market.

“Technology cannot give a biased opinion about manipulators because only the people behind the technology can take such action,” he said.

“So the activities of the regulator in reigning over manipulation raises the question of whether it is doing the job only after seeing a dent in investors’ funds,” he added.

The BSEC can only provide the right answer to this question through its own work. Otherwise, the same crisis of confidence will continue and the image of the market will only deteriorate internally and externally.

“And that cannot be solved by organizing road shows,” the official said.

On condition of anonymity, a former BSEC commissioner said the organization is constantly trying to raise the market index by any means necessary, including condescending manipulators.

The regulator recently labeled a known manipulator who was fined by the commission a large investor.

“It’s harsh cruelty from the regulator.”

Although manipulators could temporarily boost the index, their activities would rob general investors and erode confidence in the market, hampering it in the long term.

“So the BSEC should get out of this mindset of increasing the index with the help of manipulators,” he added.

Responding to all these concerns, BSEC spokesman Mohammad Rezaul Karim said that when an investor buys shares wholesale, he cannot immediately tell whether it was an attempt at manipulation. .

“So we have to wait and see if there is professional misconduct or a violation of securities rules,” he added.

Karim went on to say that in order to detect serial trading and insider trading, the BSEC has to wait for days or even months, as speeding up the process could also make honest investors liable for the breach.

Serial trading is the buying and selling of stocks between the same beneficiary accounts in order to influence the stock price.

Insider trading is the buying and selling of securities by people who have access to non-public information that could affect the value of the stock.

In response to a question, Karim said that hundreds of alerts come from the monitoring software every day, but if the monitoring team were to review every one of them, it would require a lot more manpower.

Even if the BSEC finds reasonable evidence of malpractice in the trade, it must form a commission of inquiry which needs at least 15 days to carry out a thorough investigation.

Once the investigative team submits its findings, other procedures remain in place as documents need to be verified and hearings need to be held.

On the issue of imposing light penalties, Karim said the commission imposes penalties based on the offense and declined to comment further.

The BSEC had launched Trapets InstantWatch, an automatic market transaction monitoring and compliance system widely used in Europe, to build its own monitoring network at the end of 2012.

The development and installation of the software was part of a project co-financed by the government and the Asian Development Bank (AfDB).

The installation and implementation of the surveillance software within the BSEC was also a condition for the AfDB to release $30 million as assistance under the second phase of its market development program capital.

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